Tax Consulting in the UAE

One of the most significant events in recent years has been the introduction of Corporate Tax, which came into effect for financial years beginning on or after June 1, 2023. This reform marked a radical departure from the long-standing tradition where companies were exempt from federal profit tax. Tax consulting now necessarily includes an analysis of the implications of applying the new rules for each specific organization.
The base rate is set at 9% of taxable profit exceeding AED 375,000. For amounts below this threshold, a zero rate applies, creating favorable conditions for small and medium-sized enterprises. However, it is important to understand that calculating the tax base requires careful consideration of many factors, including the correct allocation of income, deduction of allowable expenses, and application of transfer pricing provisions.
Tax consulting for businesses helps entrepreneurs navigate the intricacies of the transitional period, when many companies have faced the need to adapt their accounting systems and internal procedures. Specialists note that timely preparation is key: the earlier an organization begins implementing the required changes, the lower the likelihood of problems arising in the future.

It is important to note that not all types of activities fall under the general regime. Extractive companies operating in the natural resources sector continue to be taxed under rules established by Emirate-level legislation, which may provide for higher rates. Entities registered in free zones may qualify for a preferential regime subject to meeting certain conditions.
Tax consulting includes a detailed review of the criteria required to obtain Qualifying Free Zone Person (QFZP) status. This status allows the application of a zero rate to income derived from qualifying activities, provided that appropriate documentation is maintained and economic substance requirements are met. The process of obtaining such status requires professional support, as errors in interpreting the rules can lead to the loss of benefits and the need to pay tax at the standard rate.

One of the most complex aspects of the new system is the transfer pricing rules, which are being introduced in line with OECD recommendations. Tax consulting for businesses now necessarily includes an analysis of transactions between related parties, preparation of documentation, and justification of the prices applied. Companies that have transactions with related parties — including parent structures, subsidiaries, or companies under common control — must be prepared to provide evidence that the terms of the transactions comply with the arm's length principle.
This requirement applies to both international and domestic transactions. The Federal Tax Authority (FTA) is authorized to request relevant information and conduct audits. Tax consulting in the UAE helps organizations develop internal policies that minimize the risks of additional assessments and penalties.

Implementation and current state. Value Added Tax was introduced in the UAE on January 1, 2018, at a standard rate of 5%. This reform was the first major fiscal initiative in the region and required significant adaptation efforts from businesses. Tax support in the UAE during that period was focused on helping companies with registration, setting up accounting systems, and training staff. Today, VAT is an integral part of the business environment.
Declaration filing procedure. VAT returns are filed quarterly, except in certain cases where the FTA may permit monthly reporting. The filing deadline is the 28th day of the month following the reporting period. Professional consulting in the UAE helps organizations correctly calculate the tax amounts payable or refundable, taking into account all allowable deductions and exemptions. It is important to note that certain transactions are exempt from taxation, including some financial services, insurance, and real estate transactions.
Fines and penalties. The penalty system for VAT violations is strict. Late filing of returns, understatement of the tax base, or incorrect invoicing can lead to significant financial losses. Maximum penalties can reach 300% of the unpaid tax amount in cases of willful evasion. For organizations operating in retail, construction, or services, it is particularly important to ensure the correct application of rates and proper documentation.

An account in the UAE can be opened simultaneously in dirhams (AED), US dollars (USD), euros (EUR), and British pounds (GBP). This avoids double conversion and reduces transaction costs. Account holders should understand that each of these currencies has its own minimum balance and service fees. Some financial institutions require maintaining a balance for each currency separately.
For international companies, this flexibility of a UAE account opens up the ability to settle payments with partners from different regions without unnecessary delays. Choosing the right currency structure for your account helps avoid losses from exchange rate differences and speeds up international transfers. The UAE is one of the few places where a single account can serve multiple currency flows under one agreement.

The UAE has no federal personal income tax. This means that salaries, bonuses, commissions, dividends, bank interest, rental income from real estate, and capital gains from the sale of assets are not subject to income tax. This rule applies to both UAE residents and foreign nationals working in the country.
This is especially significant for high-income professionals and top managers, who can retain 100% of their income without tax deductions. In most countries around the world, income tax rates reach 30–50%, so the absence of such a tax is one of the main financial advantages of relocating to the UAE.
It is important to note that tax authorities in the individual's country of income origin or citizenship may levy tax if the person retains tax residency in their home country. Therefore, when planning a move to the UAE, it is necessary to obtain a UAE Tax Residency Certificate and comply with local legislation on the minimum period of stay in the country.
Individuals receiving income from business activities without registering a company fall under corporate tax rules if their income is regular and systematic in nature. In such cases, the zero rate applies to profits up to AED 375,000, but filing a return is mandatory.

Excise Tax was introduced in the UAE in 2017. It is levied on goods that are harmful to human health or the environment. The purpose of the tax is to reduce consumption of harmful products and generate government revenue.
Goods subject to excise:

• Tobacco products — rate of 100% of the sale price. This includes cigarettes, cigars, shisha tobacco, chewing tobacco, and e-cigarettes.
• Energy drinks — rate of 100%. This includes beverages containing caffeine or other stimulants in quantities exceeding the established threshold.
• Sweetened carbonated beverages — rate of 50%. Includes any beverages with added sugar or other sweeteners, including fruit juices with added sugar.
• E-cigarettes and liquids for them — rate of 100%. Since 2019, this category has been separated out.

The Federal Tax Authority (FTA) is authorized to conduct audits of compliance with UAE tax legislation. Audits can be either scheduled or unscheduled.
Types of audits:

• Desk audit — conducted based on filed returns without visiting the taxpayer. The FTA analyzes the consistency of data in the return, identifies discrepancies, and may request clarifications.
• Field audit — FTA inspectors visit the company's office or production facilities. They review primary documents, accounting registers, contracts, invoices, bank statements, and transfer pricing documentation.
• Thematic audit — conducted on a specific tax (only VAT or only excise) or on specific transactions (transfer pricing).

Rights of FTA inspectors:

• Request any documents related to the company's tax accounting in the UAE.
• Conduct interviews with employees, including directors and accountants.
• Seize original documents with the preparation of a seizure report.
• Gain access to the company's electronic accounting systems.

The UAE has created special conditions to stimulate the launch of new enterprises, particularly in innovative sectors of the economy. Many free zones offer projects and newly registered organizations exemption from mandatory payments to the state budget at the initial stage of activity. The duration of such an exemption can range from 5 to 10 years, depending on the zone and type of activity.
To obtain the grace period, a number of conditions must be met:

• Create a certain number of jobs for UAE citizens or residents.
• Confirm a minimum volume of capital investment in the emirate's economy — from AED 500,000 to AED 2,000,000, depending on the zone.
• The company must conduct real operational activity within the zone, not be a formally registered structure.

Special preferences apply to market participants in the fields of artificial intelligence, fintech, biotechnology, renewable energy, and space technology. For such projects, some zones (Dubai Silicon Oasis, Abu Dhabi Global Market, Dubai Internet City) offer an extension of the grace period, subject to achieving key performance indicators agreed upon with the zone administration.
Upon expiration of the grace period, the company transitions to standard operating conditions established in the UAE. However, during the period of relief, the enterprise has time to reach operational breakeven and build a financial cushion for further development.

The UAE has developed a special legal regime for holding companies, making the Emirates one of the most attractive jurisdictions for establishing intermediate holding companies in international groups. The main advantage is that dividends received by the holding company from subsidiaries, as well as income from the sale of equity interests (capital gains), may be fully exempt from mandatory payments.
To apply this regime, several conditions must be met:

• First condition: The minimum shareholding in the subsidiary must be at least 5% of the share capital. This requirement ensures that the holding company truly exercises control or significant influence over the subsidiary's activities.
• Second condition: The minimum holding period must be at least 12 months. If the holding company sells the stake before this period, the preferential regime does not apply, and the income is taxed on a general basis.
• Third condition: The subsidiary must conduct real economic activity and pay mandatory contributions in its country of registration. The holding company cannot use "shell" companies registered in offshore jurisdictions to obtain benefits.
• Fourth condition: The holding company must have sufficient economic presence in the UAE: its own or leased office, staff, management accounting, and board meetings held within the country.

An additional advantage is the absence of withholding tax when the holding company distributes dividends to its shareholders — whether individuals or legal entities. This allows profit to be repatriated from the UAE without additional costs.

The e-commerce and digital services sector in the UAE is under close regulatory scrutiny. Companies operating in this field face a number of specific requirements, non-compliance with which can lead to serious financial consequences.
Any company that supplies goods or services via the internet is required to register in the UAE system if its annual turnover exceeds the established threshold. For e-commerce, the threshold is 375,000 AED. The total turnover from all activities is considered, including both the sale of goods and the provision of services.
Determining the place of supply: For digital services, it is critical to correctly determine the place of supply. The rules differ for B2B and B2C segments:

• When providing digital services to legal entities (B2B), the place of supply is the country where the recipient is located. If the recipient is registered in the UAE, obligations arise in the UAE.
• When providing services to individuals (B2C), the place of supply is the country where the supplier is located. If the company is registered in the UAE, obligations arise regardless of the client's location.

Foreign companies that do not have a physical presence in the UAE but provide digital services to clients within the country are also required to comply with UAE requirements. If they exceed the turnover threshold, they must register in the system through a special procedure for non-residents. Failure to register may result in the assessment of liabilities for the entire period of activity, along with penalties.