Understanding taxes in Dubai: a guide to the essentials

Dubai’s tax framework has undergone significant changes in recent years, with VAT introduced in 2018 and corporate tax following in 2023. These changes bring the UAE into line with global tax standards but also mean businesses have more to manage – from understanding corporate tax rates, exemptions and reporting, to staying on top of VAT compliance and customs duties. The landscape has become structured and requires careful attention.

Whether you’re new to the market or looking to stay ahead of your obligations, this guide breaks down UAE taxation into its essentials, giving you a clear understanding of the main taxes and providing the insight you need to keep your business running smoothly and compliantly.

Overview of Dubai’s Tax Framework

Corporate Tax

Corporate tax (CT) became effective for financial years starting on or after 1 June 2023. It applies at a standard rate of 9% on taxable profits above AED375,000. Businesses with taxable profits below this threshold are taxed at 0%.

This regime aligns the UAE with global practices, ensuring compliance with international frameworks like the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, but it also offers one of the lowest corporate tax rates globally.

While most companies in the UAE fall under this regime, there are notable exemptions:

• Businesses engaged in the extraction of natural resources, which remain subject to emirate-level taxation.
• Qualifying Free Zone entities that meet specific conditions, such as not conducting business with the UAE mainland, may also benefit from a 0% rate on qualifying income.
• Certain government and public benefit organisations are exempt entirely.

Value Added Tax (VAT)

Introduced in 2018, VAT applies at a standard rate of 5% on most goods and services in the UAE. Unlike many jurisdictions, VAT compliance is straightforward, with businesses required to register if their annual taxable supplies exceed AED375,000. Voluntary registration is also permitted for businesses generating AED187,500 or more.

Key transactions subject to VAT include:

• Goods sold and services provided within the UAE.
• Imports of goods into the UAE.
• Certain services deemed consumed within the UAE, such as those provided to non-residents in specific cases.

Free Zones add a layer of complexity to VAT, with designated zones treated as outside the UAE for VAT purposes in certain scenarios. Transactions within these zones may be VAT-free, but businesses must still register and file returns if thresholds are met.

Other Taxes

Dubai’s tax framework remains business-friendly by excluding several taxes commonly seen elsewhere:

• No personal income tax: Salaries, dividends and other personal earnings are entirely tax-free, a factor that continues to attract talent from around the world.
• No capital gains tax: Gains on investments, real estate or securities are not subject to taxation, making Dubai a preferred choice for investors.
• No withholding taxes: Payments such as dividends, interest or royalties made to foreign entities are not taxed, ensuring smooth cross-border transactions.

Additionally, Dubai imposes customs duties, typically at a rate of 5%, on imported goods. Specific categories, such as alcohol and tobacco, carry higher rates. Excise taxes are also in place for products like sugary drinks, energy drinks and tobacco to encourage healthier consumption.

Key Tax Obligations for Businesses in Dubai

Registration and compliance

All businesses in Dubai must register with the Federal Tax Authority (FTA) for corporate tax, but only those with annual taxable profits exceeding AED375,000 are subject to the 9% tax rate. Registration must be completed through the FTA portal before the applicable deadline for the company’s financial year.

For VAT, registration applies to businesses with an annual turnover exceeding AED375,000, while those earning above AED187,500 but below AED375,000 have the option to register voluntarily.

Corporate tax returns must be filed within nine months of the end of the financial year, while VAT returns are typically due either monthly or quarterly, depending on the business’s turnover. Missing deadlines can result in significant penalties, starting from AED1,000 for initial delays and escalating for repeated offences.

Reporting requirements

Maintaining detailed and accurate records of income, expenses and taxable transactions is essential for compliance. For VAT, businesses must submit returns that clearly outline input VAT (on purchases) and output VAT (on sales), ensuring proper reconciliation. Corporate tax filings require detailed financial statements that are prepared in line with international accounting standards, supported by evidence of all deductible expenses and applicable exemptions.

Large businesses file VAT returns monthly, while smaller entities generally follow a quarterly schedule. Ensuring compliance with these reporting requirements minimises the risk of audits and financial penalties, which can disrupt operations and damage reputation.
Common mistakes in UAE corporate tax filings

Despite these clear regulations, businesses in the UAE often stumble over the details which can lead to costly errors. Typically, these might include:

• Inaccurate records: incomplete or poorly maintained records lead to tax miscalculations, audits and penalties. Keep detailed documentation, including invoices and receipts, and store them for the required five years to stay audit ready.
• Expense misclassification: misclassifying expenses – such as entertainment or interest, which have deductibility limits – can inflate taxable income. Ensure that you categorise costs accurately and claim only business-related expenses to avoid any issues.
• Missed deadlines: late registration or filing comes with strict penalties. Register with the FTA as soon as you qualify and use reminders or software to track deadlines.
• Incorrect tax calculations: misjudging tax liabilities often stems from misunderstanding deductions or applying the wrong tax rates. Regular reviews and expert advice can prevent costly errors.
• Overlooked tax incentives: many businesses miss out on tax benefits, such as small business relief or Free Zone exemptions. Stay informed to maximise all potential savings.
• Related-party transactions: payments to directors or shareholders must follow the ‘arm’s length’ principle (i.e., for fair market value). Ensure pricing reflects market standards and maintain proper documentation to avoid disputes.

How can Sovereign PPG assist?

Sovereign PPG has both a deep understanding of UAE tax regulations and direct connections with government entities and Free Zone authorities. Having a trusted team to manage your accounting and bookkeeping requirements is essential. We ensure that client businesses stay compliant, handling everything from corporate tax registration to ongoing compliance and reporting.

If you need support with tax or VAT, or any other matter related to company set-up, restructuring, local partner or PRO support in Abu Dhabi, Dubai, the wider UAE, Oman, Qatar or the KSA, then please do get in touch with us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi. Alternatively, email us at info@sovereigngroup.com or complete the contact form below. We will be delighted to assist you.