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Dubai corporate tax is a federal tax levied on the taxable income of companies operating in the United Arab Emirates and is administered by the Federal Tax Authority (FTA). The first AED 375,000 of taxable income is taxed at 0%, and everything above that threshold at 9%. The pattern seen most often in practice is simple: an owner still treats the UAE as a tax-free jurisdiction, postpones registration and filing, and the result is an administrative fine.
Assuming that tax registration happens automatically once a licence is issued is one of the most expensive misconceptions in the market, because it creates retroactive compliance work. A properly structured accounting system, timely tax registration and regular financial reporting are the three things that genuinely reduce tax risk in Dubai.
Table of Contents
UAE Corporate Tax Rate 2026: 0% up to AED 375,000, 9% Above
UAE Corporate Tax Penalties 2026: Complete FTA Fine Table
Who Pays Corporate Tax in Dubai? Mainland and Free Zone Rules
Corporate Tax Registration and the AED 10,000 Late Registration Penalty
Expense Mistakes the FTA Penalises Most Often
The Inflated Salary Mistake: What the FTA Actually Checks
Salary or Dividend? A Tax Comparison for Shareholder Payments
How Is Corporate Tax Calculated? A Step-by-Step Example
Small Business Relief Extended to 31 December 2029: Conditions and Limits
When Is the Corporate Tax Return Due? Nine Months After Period End
Received a Penalty? FTA Reconsideration and Voluntary Disclosure
The corporate tax rate is 0% on the portion of taxable income up to AED 375,000 and 9% on the portion above that threshold. The rate and the threshold are set by Article 3 of Federal Decree-Law No. 47 of 2022 and Cabinet Decision No. 116 of 2022. The single biggest mistake in practice is treating accounting profit as the taxable base and filing on that figure.
Companies holding Qualifying Free Zone Person status do not receive the AED 375,000 nil-rate band: qualifying income is taxed at 0% and non-qualifying taxable income at 9%. The conditions and the de minimis limit are covered in detail in our Qualifying Free Zone Person (QFZP) guide.
Taxable income is not simply revenue minus expenses. Financial statements are prepared under IFRS, while the tax computation follows FTA rules. Depreciation, provisions, entertainment costs and certain management charges are treated differently under the two systems. Without that adjustment, a company can under-declare without realising it.
The first thing examined in an FTA review is whether an expense was incurred for business purposes and whether it is supported by adequate documentation. Uninvoiced spending, personal costs booked to the company and unexplained bank withdrawals lead directly to base adjustments and penalties.
Corporate tax penalties are set out in Cabinet Decision No. 75 of 2023 as amended by Cabinet Decision No. 10 of 2024. Failing to register on time costs AED 10,000, a late return costs AED 500 per month for the first twelve months, and unpaid tax accrues at 14% per annum on a monthly basis.
| Violation | Penalty | What It Means in Practice |
|---|---|---|
| Failure to register for corporate tax on time | AED 10,000 | One-off per entity; can be waived under the FTA initiative |
| Late filing of the tax return – first 12 months | AED 500 per month | Charged for each month or part of a month |
| Late filing – from month 13 onwards | AED 1,000 per month | The monthly charge doubles after one year |
| Failure to settle payable tax on time | 14% per annum | Accrues monthly even when the return was filed |
| Failure to keep the required records | AED 10,000 – AED 20,000 if repeated within 24 months | The usual outcome of undocumented expense files |
| Failure to provide records in Arabic when requested | AED 5,000 | Frequently overlooked during audit correspondence |
| Submitting an incorrect tax return | AED 500 | No penalty if corrected before the filing deadline |
| Failure to notify the FTA of changes to tax records | AED 1,000 – AED 5,000 if repeated | Address, activity and ownership changes |
| Failure to deregister within the deadline | AED 1,000 per month, capped at AED 10,000 | The forgotten step when a licence is closed |
| Failure to facilitate the work of a tax auditor | AED 20,000 | Leaving information requests unanswered |
| Voluntary disclosure | 1% per month on the tax difference | The reduced regime when you report the error yourself |
| No voluntary disclosure before an audit notification | Fixed 15% plus 1% per month | The cost multiplies when the FTA finds the error first |
Penalties apply per violation and accumulate when several occur in the same period. For a company that is fourteen months late in filing and also registered late, the arithmetic is: AED 10,000 registration + 12 × AED 500 = AED 6,000 + 2 × AED 1,000 = AED 2,000, for a total of AED 18,000 before any late payment charge is added.
Almost every licensed legal person in Dubai falls within the corporate tax regime. Registration is required broadly, free zone companies included; paying tax and registering for tax are two separate obligations. Natural persons whose turnover exceeds AED 1,000,000 in a calendar year must also register.
Mainland companies operate in the UAE domestic market and are directly within the corporate tax regime. Service, trading and consultancy firms that operate without completing registration are the ones most often hit with administrative fines. The tax differences between the two structures are set out in our mainland versus free zone comparison.
Being incorporated in a free zone does not by itself mean zero tax. What matters is the nature of the activity, the source of income and whether the compliance criteria are met. The assumption that a free zone licence means no tax is the most common reason registration gets neglected.
Qualifying Free Zone Person status allows a 0% rate on qualifying income. Maintaining it requires adequate substance in the free zone, compliance with the arm’s length principle, transfer pricing documentation and audited financial statements. The de minimis limit requires non-qualifying revenue to stay below 5% of total revenue or AED 5,000,000, whichever is lower. If a condition is breached, the FTA Free Zone Persons Guide provides that the company loses the status for that tax period and the four subsequent tax periods.
Exemptions generally cover government entities, qualifying public benefit organisations, qualifying investment funds and entities under specific regimes. Companies that treat themselves as exempt without confirming the status officially carry a significant compliance risk before the FTA.
Failing to register on time is the single most common reason companies in the UAE are fined. Owners often assume registration happens automatically once the licence is issued, but a separate application must be made through the FTA system. Legal persons incorporated on or after 1 March 2024 have three months from incorporation. For companies established earlier, FTA Decision No. 3 of 2024 set a staggered timetable based on the month of licence issue.
Late registration triggers more than the AED 10,000 fine: it also creates retroactive compliance obligations. Registration should not be postponed once company formation is complete.
The FTA operates a waiver initiative for the late registration penalty. The condition is precise: the corporate tax return or annual declaration must be filed no later than seven months from the end of the first tax period. Where that is met, the AED 10,000 penalty is waived, and if it has already been paid the amount is credited back to the taxpayer’s FTA account. The seven-month window applies to the first tax period only.
Registration, penalty and compliance data are kept up to date on the FTA portal, and eligibility can be checked directly on the official screen.
FTA penalty waiver eligibility check · FTA official tax portal – penalty waiver initiative
Expense management is the most sensitive area in an FTA review. Costs that do not reflect commercial reality, are undocumented or are personal in nature are treated as non-compliance and lead to an adjustment of the taxable base.
Uninvoiced spending and unexplained bank withdrawals are the first items examined in an audit. Accounting records in the UAE must be supported by documentation, and records must be retained for seven years from the end of the tax period. Missing paperwork produces both a disallowed expense and a record-keeping penalty.
Recording personal purchases made on a company card as business costs is the most frequent error among smaller businesses. Because these entries artificially reduce the taxable base, they lead to disallowance and to further exposure for under-declaration.
Payments to shareholders, group companies or directors must reflect market conditions. Article 34 of Federal Decree-Law No. 47 of 2022 makes the arm’s length principle mandatory. Where consolidated group revenue exceeds AED 3.15 billion or the entity’s own revenue exceeds AED 200 million, a master file and local file must also be maintained.
Some costs cannot be deducted in full even when they are fully documented:
Many owners try to increase deductible costs by paying themselves or family members a high salary in order to reduce the taxable base. The FTA assesses these payments against commercial reality and the arm’s length principle: the question is not whether the payment was made, but whether the amount is proportionate to the work performed. The benchmarks the FTA applies to owner remuneration are set out in our business owner salary and FTA benchmarking article.
Paying a high salary to someone with no active role, or setting remuneration inconsistent with the job description, is treated as high risk in an audit. Assigning a salary far above the sector average to a person without the relevant qualification or experience is the textbook case that ends in disallowance.
Large bonus and incentive payments made without a management resolution may not be accepted as deductible. Every salary and incentive payment should be supported by an employment contract, payroll records and a bank trail.
Confusing dividend distributions with salary payments is one of the most common accounting errors in Dubai. The two have entirely different tax consequences, and misclassification leads straight to a disallowed deduction.
| Criterion | Salary Paid to a Shareholder | Dividend Distributed to Shareholders |
|---|---|---|
| Effect on the taxable base | Deductible if arm’s length, reducing the base | A profit distribution; not deductible |
| Required documentation | Employment contract, job description, payroll, bank record | Shareholders’ resolution, approved financial statements |
| What the FTA tests | Commercial reality and arm’s length pricing (Art. 34) | Availability of distributable profit and consistency of records |
| Most common error | Setting pay out of proportion to the role | Booking a dividend as a salary expense |
| Audit outcome | Base adjustment and disallowed deduction | Disallowed deduction and under-declaration risk |
A dividend must be consistent with the shareholders’ resolution, the financial statements and the accounting records. Gaps between the resolution date and the payment date make the nature of the payment arguable in an audit.
Rushed distributions at year end or irregular shareholder current account movements distort both the taxable base and the financial statements. Planned cash management prevents most of these errors before they arise.
The first step is to arrive at taxable income by adjusting accounting profit for non-deductible expenditure. The calculation below uses a company with annual revenue of AED 1,200,000, documented expenses of AED 700,000 and non-deductible expenses of AED 50,000.
| Line Item | Amount (AED) |
|---|---|
| Annual revenue | 1,200,000 |
| Documented expenses (–) | 700,000 |
| Accounting profit | 500,000 |
| Non-deductible expenditure (+) | 50,000 |
| Taxable income | 550,000 |
| Portion taxed at 0% | 375,000 |
| Portion taxed at 9% | 175,000 |
| Corporate tax payable | 15,750 |
If the same company elects Small Business Relief and meets the conditions, its taxable income is treated as nil and no corporate tax arises for that period. The relief is not automatic: without a filed return and a valid election, the benefit does not apply.
Small Business Relief treats the taxable income of eligible companies with revenue of AED 3,000,000 or less as nil. On 7 August 2026 the UAE Ministry of Finance announced that the relief now applies to tax periods ending on or before 31 December 2029. The scope of the measure is examined with examples in our Small Business Relief guide.
Businesses that misread the relief assume no return is required, which is one of the most common misunderstandings that later produces a penalty. Companies claiming the relief must still file their simplified return within the statutory deadline.
The corporate tax return must be filed through the FTA system within nine months of the end of the tax period, and the tax must be paid within the same window. For a financial year ending 31 December 2025, the deadline is 30 September 2026. The most common mistake is not knowing that the deadline runs from the financial year end, not from the licence date.
Missing the deadline brings both a late filing penalty and additional audit exposure. Planning the accounting and tax calendar annually is the most basic compliance step, and the mechanics are explained further in how corporate tax is applied in Dubai.
The first step against a penalty decision is a reconsideration request to the FTA, submitted within 40 business days of being notified of the decision. The FTA then has 40 business days to review and decide, and notifies its decision within a further 5 business days.
If the outcome is unfavourable, the case can be taken to the Tax Disputes Resolution Committee within 40 business days of notification. For the objection to be admitted, the full amount of tax in dispute must have been paid. Where the total of tax and administrative penalties does not exceed AED 100,000, the Committee’s decision is final; above that, the matter can be appealed to the competent court within 40 business days.
Correcting an error before the FTA finds it is always cheaper. Under a voluntary disclosure the penalty runs at 1% per month on the tax difference; where no voluntary disclosure was made before an audit notification, a fixed 15% is added on top.
Compliance comes down to six steps. Each has its own deadline and its own cost of delay, and the order below mirrors the order in which problems actually surface during audits.
| Step | Obligation | Deadline | Cost of Delay |
|---|---|---|---|
| 01 | Corporate tax registration with the FTA | 3 months from incorporation | AED 10,000 |
| 02 | Setting up accounting and documentation | Ongoing throughout operations | AED 10,000 – AED 20,000 if repeated |
| 03 | Preparing financial statements and reviewing expenses | After period close | Disallowed expenses and base adjustment |
| 04 | Filing the corporate tax return | 9 months from period end | AED 500 per month, AED 1,000 after month 12 |
| 05 | Paying the tax due | Same window as filing | 14% per annum, accruing monthly |
| 06 | Retaining records and documents | 7 years from period end | AED 10,000 – AED 20,000 if repeated |
For companies weighing where their structure sits within the wider UAE tax framework, our overview of tax rates and the tax system in Dubai puts corporate tax alongside VAT, excise and the other levies that apply.
From registration and bookkeeping to filing and penalty appeals, the World Company Setup team supports your company with UAE-compliant accounting, timely returns and audit-ready documentation.
Companies that fail to register for corporate tax within the deadline are fined AED 10,000. The penalty is set by Cabinet Decision No. 75 of 2023 as amended by Cabinet Decision No. 10 of 2024 and applies once per entity. Where the corporate tax return is filed within seven months of the end of the first tax period, the penalty can be waived under the FTA waiver initiative.
The corporate tax return must be submitted through the FTA system within nine months of the end of the tax period, and the tax is payable within the same window. For a financial year ending 31 December 2025, the deadline is 30 September 2026. The deadline runs from the financial year end, not from the licence date. Late filing costs AED 500 per month for the first 12 months and AED 1,000 per month from month 13.
Taxable income up to AED 375,000 is taxed at 0% and the portion above that threshold at 9%. The rate and threshold come from Federal Decree-Law No. 47 of 2022 and Cabinet Decision No. 116 of 2022. Qualifying Free Zone Persons do not receive the AED 375,000 nil-rate band: qualifying income is taxed at 0% and non-qualifying income at 9%.
No. Incorporating in a free zone does not by itself create an exemption and does not remove the registration requirement. To benefit from the 0% rate a company must meet the Qualifying Free Zone Person conditions: adequate substance in the free zone, qualifying income, arm’s length pricing, transfer pricing documentation and audited financial statements. If non-qualifying revenue exceeds 5% of total revenue or AED 5,000,000, whichever is lower, the status is lost.
On 7 August 2026 the UAE Ministry of Finance announced that Small Business Relief applies to tax periods ending on or before 31 December 2029. Eligible companies with revenue of AED 3,000,000 or less can claim it. The relief is not automatic: an election must be made in the tax return and the simplified return must still be filed on time.
Only 50% of entertainment, amusement and recreation expenditure is deductible. Fines and penalties are not deductible, except amounts awarded as compensation for damages or breach of contract. Net interest expenditure is generally capped at 30% of EBITDA, and companies whose net interest expenditure does not exceed AED 12,000,000 fall outside that limitation. Expenditure attributable to exempt income, undocumented costs and personal spending are also non-deductible.
Yes, provided the payment reflects commercial reality and is set at arm’s length. The FTA compares job title, role description, working time and sector benchmarks. Remuneration that is not supported by an employment contract, payroll and a bank trail, or that is disproportionate to the role, results in a disallowed deduction and a base adjustment. Dividend distributions, by contrast, are never deductible.
The first step is a reconsideration request to the FTA within 40 business days of being notified of the decision. The FTA decides within 40 business days and notifies its decision within a further 5 business days. If the outcome is unfavourable, the case can be taken to the Tax Disputes Resolution Committee within 40 business days, provided the full amount of tax in dispute has been paid. Where tax and penalties together do not exceed AED 100,000, the Committee decision is final.
For corporate tax purposes, records and supporting documents must be kept for at least seven years following the end of the relevant tax period. The obligation applies not only to taxable persons but also to exempt persons required to register. Failure to keep the required records is fined AED 10,000, rising to AED 20,000 where the violation is repeated within 24 months.
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