Getting your VAT return right the first time
The reconciliations and records that prevent most VAT corrections and penalties.
How the two bands work
UAE Corporate Tax applies to financial years starting on or after 1 June 2023. Taxable income up to AED 375,000 is taxed at 0%. Only the part above that amount is taxed at 9%. The threshold applies to taxable income, not revenue, so a business with high sales and thin margins may pay little or nothing.
| Taxable income | At 0% | At 9% | Tax due | Effective rate |
|---|---|---|---|---|
| AED 300,000 | 300,000 | 0 | AED 0 | 0.0% |
| AED 500,000 | 375,000 | 125,000 | AED 11,250 | 2.3% |
| AED 1,000,000 | 375,000 | 625,000 | AED 56,250 | 5.6% |
| AED 5,000,000 | 375,000 | 4,625,000 | AED 416,250 | 8.3% |
The effective rate rises towards 9% as income grows, but never reaches it, because the first AED 375,000 is always taxed at 0%.
What counts as taxable income
Taxable income starts from the accounting profit in your financial statements, prepared under IFRS or, for businesses with revenue of AED 50 million or less, IFRS for SMEs. That profit is then adjusted. Common adjustments include:
- Entertainment: only 50% of client entertainment costs is deductible.
- Interest: net interest costs are deductible up to the higher of AED 12 million or 30% of adjusted EBITDA.
- Exempt income: for example, dividends from UAE companies and qualifying participations.
- Related parties: transactions with owners and group companies must be at arm's length, and payments to owners must reflect market value.
Because everything starts from the accounts, errors in bookkeeping or IFRS treatment flow straight into the return. Clean financial reporting is the first step in getting Corporate Tax right.
Small Business Relief
Resident businesses with revenue of AED 3 million or less in a tax period can elect Small Business Relief and be treated as having no taxable income. It is available for tax periods ending on or before 31 December 2026. It is not available to Qualifying Free Zone Persons or members of large multinational groups, and electing it does not remove the need to register, file and keep records.
Free zone companies
A free zone company that meets every condition of a Qualifying Free Zone Person pays 0% on qualifying income and 9% on the rest. The conditions include adequate substance in the free zone, audited financial statements and staying within limits on non-qualifying revenue. Missing one condition can take the company out of the regime for five years, so it is worth checking before the year-end, not after.
Registering is required even when no tax is due. The most common early mistake is assuming a 0% result means nothing to file.
What to prepare before your first return
- Registration: confirm your Corporate Tax registration on EmaraTax. A late registration penalty of AED 10,000 can apply.
- Financial statements: IFRS-based accounts for the tax period, audited where required.
- Adjustments schedule: a reconciliation from accounting profit to taxable income.
- Related-party records: agreements and support for pricing with owners and group companies.
- Elections: decide on Small Business Relief or other elections before filing.
- Deadline: file and pay within nine months of the year-end, which is 30 September for a December year-end.
This article is general information based on UAE rules as published by the Federal Tax Authority and the Ministry of Finance. It is not advice for your business. Rules and guidance change; ask Hassan to confirm your position.
Official sources: Federal Tax Authority · UAE Ministry of Finance
