UAE Corporate Tax, what changed through late 2026.

Federal Decree-Law 47 of 2022, effective 1 June 2023:

• Standard rate 9% on taxable income above AED 375,000 (~USD 102K / INR 85 lakh).
• 0% rate on first AED 375,000 (small-business relief for all entities).
• Free Zone Qualifying Free Zone Person (QFZP) regime: 0% on Qualifying Income; 9% on non-qualifying.
• Economic Substance Regulations (ESR) parallel compliance for Relevant Activities.
• Transfer Pricing arm's-length principle, OECD-aligned, mandatory documentation for related-party transactions.
• CbCR (Country-by-Country Reporting) for MNE groups above EUR 750M consolidated revenue.

The Qualifying Free Zone Person status requires an entity to satisfy ALL of the following:

1. Adequate substance in a UAE Free Zone — actual activities carried out in the Free Zone with qualifying employees, operating expenditure proportional to activity, physical office space.
2. Derives Qualifying Income — specific list of qualifying activities and transactions updated through Cabinet Decision 55 of 2023 and subsequent FTA guidance.
3. Maintains audited financial statements.
4. Complies with Transfer Pricing documentation requirements.
5. Does not elect out of the QFZP regime (election is irrevocable for 5 years).

Qualifying Income (2024-2026 clarified position) includes:

• Income from transactions with other Free Zone persons (except for excluded activities).
• Income from Qualifying Activities with non-Free Zone persons.
• Income from ownership and exploitation of qualifying intangible assets (specific sub-regime).
• Treasury financing to related parties within the Free Zone group.
• Specified ancillary income (e.g., up to 5% of total revenue from non-qualifying activities under de minimis rule).

Excluded activities (always taxed at 9%):

• Transactions with natural persons (individuals) — except specific carve-outs.
• Banking, insurance, finance (certain categories).
• Ownership or exploitation of UAE real estate (except in specific Free Zone contexts).
• Transactions with non-Free Zone UAE Mainland (above the de minimis).

Economic Substance Regulations (ESR) were pre-existing (effective 2019) and continue alongside Corporate Tax. For entities carrying out Relevant Activities (banking, insurance, fund management, headquarters, holding, IP, distribution, lease-finance, shipping, service centre):

• ESR Notification filed within 6 months of financial year-end (specific deadlines by Free Zone).
• ESR Report filed within 12 months of year-end if the entity derived income from Relevant Activities.
• Substance tests — core income-generating activities in UAE, adequate employees, operating expenditure, physical premises.
• Non-compliance penalty — AED 20,000-50,000 for failures, with potential escalation.

CT and ESR substance tests overlap but are not identical. Entities should run both separately: QFZP qualification for CT + ESR substance notification/report for applicable Relevant Activities.

UAE CT requires arm's-length pricing for related-party transactions. Documentation levels:

• Local File — mandatory for entities with related-party transactions above AED 40 million.
• Master File — for MNE groups above AED 3.15 billion consolidated revenue.
• CbCR — for MNE groups above EUR 750M.
• Disclosure Form in the annual CT return.

For an Indian-founder Dubai holdco with cross-border intercompany flows (IP licensing from Dubai parent to Indian subsidiary; service fees from Indian sub to Dubai parent; dividend upstream), the TP documentation needs careful construction. Functional analysis, benchmarking against OECD comparables, consistent application across years.

OECD Pillar 2 introduces a 15% global minimum effective tax rate for MNE groups above EUR 750M consolidated revenue. UAE has signalled intent to implement Pillar 2 through a Domestic Minimum Top-up Tax (DMTT) — effective status as of October 2026 is subject to confirmation via FTA guidance.

If implemented:

• UAE 9% CT rate alone falls below 15% minimum.
• In-scope MNEs could face additional top-up tax to reach 15% effective rate on UAE profits.
• DMTT, if enacted, would keep the top-up tax within UAE rather than ceded to home-country IIR (Income Inclusion Rule).

For Indian-founder UAE holdcos below the EUR 750M threshold, Pillar 2 does not directly apply at the entity level. For larger structures or Indian parent companies with UAE subsidiaries that aggregate across groups above EUR 750M, Pillar 2 modelling becomes essential.

Monitor FTA announcements; the DMTT framework is expected to crystallise through late 2026 and 2027.

1. Register for CT with the FTA (deadlines by legal form; most entities registered by late 2024-2025).
2. Determine QFZP eligibility — substance, Qualifying Income analysis, de minimis compliance.
3. File CT return within 9 months of financial year-end.
4. Maintain Transfer Pricing documentation — Local File if above AED 40M related-party threshold.
5. File ESR Notification and Report for Relevant Activities.
6. Build audited financial statements — QFZP requires audited accounts.
7. Monitor Pillar 2 / DMTT updates if in a large MNE group.

Last updated: 2026-10-07.