Corporate income tax in Dubai: Introduction, allowances and exemptions for companies

The United Arab Emirates (UAE), and Dubai in particular, have long been considered an attractive jurisdiction for German entrepreneurs in terms of taxation. However, with the introduction of corporate tax as part of the “Vision 21” economic strategy, the tax environment has changed fundamentally. Companies are now faced with the challenge of reassessing their tax situation and precisely understanding the impact on their profit planning.

Without a careful tax analysis, there is a risk of unused allowances, compliance violations and possible additional payments, which can have a significant impact on financial planning. For small and medium-sized companies in particular, which have previously benefited from Dubai’s tax attractiveness, it is crucial to correctly classify the new regulations. In addition, special regulations for free zone companies raise questions that can lead to tax disadvantages if disregarded.

In this article, we therefore provide you with a clear overview and explain which companies are affected by Dubai’s corporation tax, how the tax allowance is structured and under which conditions free zone companies remain exempt from tax liability.

Since June 1, 2023, corporate income tax has been a mandatory part of the UAE’s federal tax system. Corporate profits in excess of AED 375,000 are now subject to a tax rate of 9%, while profits below this threshold remain tax-free. This regulation primarily affects companies operating in the Mainland. However, under certain circumstances, free zone companies may also be subject to tax. The Federal Tax Authority (FTA) is responsible for administration and enforcement.

The introduction of this tax represents a significant change in Dubai’s tax law. It requires precise tax planning and legal review to minimize risks and ensure compliance.

Corporate income tax in the UAE provides for clear allowances: Profits up to AED 375,000 remain tax-free, only the amount in excess of this is taxed at 9%.

An additional turnover allowance of AED 1 million applies for private individuals and free zone companies. Up to this limit, there are no registration or reporting obligations. This regulation provides relief for start-ups and small to medium-sized companies in particular, as the tax liability only applies once the profit or turnover limit has been exceeded, thus limiting the financial burden during the growth phase.

Not all companies are subject to UAE corporate tax. The 9% rate initially only applies to mainland companies that operate in Dubai, are not registered in a free zone and whose taxable profit exceeds the specified exemption amount.
Since 2025, very large multinational groups may also be subject to an additional minimum tax of 15% (Domestic Minimum Top-Up Tax). However, certain capital gains, dividends and holding companies established in the UAE are exempt from corporation tax.

Freezone companies can also remain tax-exempt provided they meet the criteria of a “Qualifying Free Zone Person” – an important factor for innovative and export-oriented companies.

A “Qualifying Free Zone Person” is a company that is registered in a UAE free zone and meets the requirements for tax exemption. These include, among others:

• Business activities exclusively within the free zone or outside the UAE
• Compliance with the regulations of the respective free zone

Such companies do not have to pay corporation tax on their profits. The aim of this regulation is to secure tax advantages for free zone companies while at the same time implementing the uniform tax liability for Mainland companies.

The introduction of corporate tax in Dubai is fundamentally changing the tax environment as we know it. Without careful examination, there is a risk of unused allowances, compliance violations and financial disadvantages – especially for start-ups, SMEs and companies in free zones.

Incorrect classifications or missed structuring opportunities can quickly lead to additional payments or legal uncertainties. Freezone companies in particular must carefully check whether they meet the criteria of a “Qualifying Free Zone Person” in order to benefit from the tax exemption.

Professional advice on corporate tax law provides clarity. With a sound analysis of your company structure, you can make optimum use of tax allowances, minimize risks and take full advantage of tax benefits.

Act now: Have your tax situation checked by our experienced experts and secure legal and tax security – arrange your consultation appointment with TME Legal today.