In 2025, the UAE introduced a new set of corporate tax changes, continuing the shift initiated by Federal Decree-Law No. 47 of 2022. This law introduced a 9% tax on business profits exceeding AED 375,000. The latest updates were designed to bring more clarity to the tax system, limit profit shifting, and align the country with international practices such as the OECD’s BEPS Pillar Two guidelines. These developments marked a clear move away from the UAE’s earlier tax-free image. For businesses running in the region, staying ahead with these changes became essential for staying compliant and planning the future.
In the blog ‘UAE Corporate Tax Reform 2025: Key Changes and Timeline’, let’s have a quick glance at the major changes that have been made in the UAE corporate tax.
Major Corporate Tax Changes in the UAE – 2025
Mandatory Corporate Tax Registration
All entities falling under the UAE’s corporate tax regime are now required to register with the Federal Tax Authority (FTA), regardless of whether they are subject to tax or eligible for exemptions.
Entities that must register include:
- Mainland companies engaged in commercial, professional, or industrial activities.
- Free zone entities, even those eligible for 0% corporate tax.
- Foreign companies having a fixed place of business in the UAE.
- Individuals earning over AED 1 million per year from business activities.
Deadline:
Registration must be completed by March 31, 2025. If not, it can lead to penalties of up to AED 10,000.
Domestic Minimum Top-Up Tax (DMTT)
The DMTT came into effect on January 1, 2025, with a target on large multinational enterprises (MNEs) under the OECD Pillar Two framework.
Applicability Criteria:
- MNEs with a consolidated global revenue of €750 million (approx. AED 3 billion)
- Revenue threshold must be met in any two of the past four financial years
Key Point:
If the effective tax rate in the UAE is below 15%, the DMTT brings it up to meet this minimum.
Taxation Rules for Free Zone Businesses
Free zone companies can still benefit from a 0% corporate tax rate, but stricter conditions now apply:
- Income must be earned from within the free zone or from foreign entities.
- Transactions with the UAE mainland are generally subject to the standard 9% rate.
- Entities must meet substance requirements, which include having a physical office and conducting major activities locally.
General Anti-Abuse Rules (GAAR)
To prevent tax avoidance, the FTA has reinforced Article 50 – GAAR of the Corporate Tax Law.
Common abusive practices include:
- Structuring income to qualify for small business relief
- Artificial related-party transactions intended to lower taxable income
The FTA will assess based on:
- Actual business purpose
- Economic substance
- Financial impact and timing
Transactions deemed to exist mainly for tax benefits may be recharacterized, and deductions or exemptions can be denied.
Business Implications of UAE’s 2025 Corporate Tax Changes
The 2025 corporate tax reforms in the UAE bring a shift toward stricter compliance and closer alignment with global tax frameworks. Companies must act smart to adapt internal processes and legal structures.
Mandatory Compliance and Reporting Requirements
With the implementation of the Domestic Minimum Top-Up Tax (DMTT) and updated registration rules, businesses must enhance their tax reporting frameworks. This includes accurate documentation, transfer pricing records, and system upgrades to meet audit and filing standards. Professional tax advisory support is increasingly necessary to avoid administrative penalties.
Review of Free Zone Eligibility
Free zone companies aiming to retain the 0% corporate tax rate must prove they qualify as QFZPs. This requires:
- Physical presence within the free zone
- Income generation from eligible sources
- Separation of mainland and non-mainland transactions
Failure to meet these conditions may lead to a 9% tax on non-qualifying income.
Reassessment for Multinational Groups
MNEs with global consolidated revenues exceeding €750 million in two of the last four years must evaluate their UAE operations. If the local effective tax rate falls below 15%, the DMTT will apply. These businesses must assess their global structures and tax positions in line with the BEPS Pillar Two rules.
GAAR Enforcement and Transaction Scrutiny
The UAE is enforcing stricter General Anti-Abuse Rules (GAAR). Transactions lacking a genuine commercial purpose, structured mainly for tax advantage, can be recharacterized or ignored by the Federal Tax Authority. Common risks include artificially splitting revenue or restructuring to qualify for tax reliefs.
Greater Need for Internal Governance
Across all business types, a more proactive tax strategy is essential. Companies must build stronger internal controls, conduct regular compliance checks, and align operations with the legal framework to reduce exposure to tax risk and enforcement actions.
Corporate Tax Exemptions in the UAE
The UAE Corporate Tax Law outlines specific exemptions and relief options to reduce tax impact for qualifying entities and promote business growth in selected sectors.
Government-Owned Entities
Businesses that are fully owned and operated by the government and perform sovereign or official public functions are fully exempt from corporate tax.
Public Benefit Organizations
Nonprofit and charitable organizations may be granted tax exemption if they meet eligibility conditions and are registered with the Ministry of Finance.
Natural Resource Operations
Businesses engaged in extracting natural resources such as oil, gas, or minerals remain subject to emirate-level taxation and are not liable for federal corporate tax. However, they must register for corporate tax and report any non-extractive activities conducted.
Small Business Relief – Article 21
Companies with annual revenues not exceeding AED 3 million—in both the current and previous tax periods—may opt for small business relief, allowing them to be treated as having no taxable income. This benefit is available until December 31, 2026, and helps reduce the compliance burden on smaller businesses.
Qualifying Investment Funds
Certain investment funds may be exempt from corporate tax if they meet specified criteria, including regulatory oversight and investor base requirements. Eligibility must be confirmed through the Ministry of Finance’s approval.
Eligible entities should assess these options during their tax planning cycle to lower liabilities and fulfill compliance obligations efficiently.
The UAE’s 2025 corporate tax changes are changing the way businesses operate, with new rules, tighter compliance, and clearer guidelines. So, if you are planning to review your strategy and stay ahead of all these, it’s time to reach out to us! We, at Damaar Business Consultants, guide you with confidence through registrations, compliance, smart tax planning, and a lot more.
