The UAE has always been known for its business-friendly environment, especially when it comes to taxes.
But that’s changing.
As Wahaj Siddiqui, Managing Director at Oblique Consult, points out, this new framework requires a strategic reassessment of how businesses, particularly family offices and international holding structures, are organized and managed.
And while that brings long-term opportunities, it also means businesses need to adapt.
What Is the New UAE Corporate Tax?
In late 2022, the UAE issued Federal Decree-Law No. 47. It brought in a corporate income tax that officially kicked off for most businesses on January 1, 2024. If your company makes over AED 375,000 a year, you’re now looking at a 9% tax on profits.
There’s some relief for smaller companies. If your revenue is under AED 3 million, you might qualify for the small business exemption. The law also outlines specific exemptions for free zone entities that meet certain conditions, and some sectors such as natural resources remain subject to separate taxation by individual emirates.
Who Does This Affect?
Technically, the tax applies to all legal entities operating in the UAE. But there’s more to it than just where your business is registered. The tax also considers where your company is “effectively managed and controlled.” In plain terms, if the real decision-making happens in the UAE (even for a foreign company), you could be seen as a UAE tax resident.
That means the location of key decision-makers such as directors and senior management can influence whether an international business is considered a UAE tax resident.
This has raised red flags among family-owned businesses with international footprints.
They are a huge part of the UAE’s private sector. And many of them have layered, cross-border structures and complex investment portfolios, some with assets overseas and others spread across multiple industries.
The corporate tax regime means these entities must now evaluate how their management structure aligns with tax residency rules. These families need to start asking some tough questions: where are our directors based? Where are board decisions made? How do we prove where control lies?
Moreover, the impact of tax extends beyond boardrooms. Real estate holdings, which are common in family portfolios, also need closer scrutiny. Even though some real estate income may be exempt, it really depends on how your holding structure is set up and operated. One wrong move and you could end up paying more than expected.
Looking Ahead: Global Minimum Tax Is Coming
As if the current changes weren’t enough, there’s another shift on the way. The UAE is expected to align with the OECD’s global minimum tax rules, often called “Pillar Two.” These rules apply to multinationals making over €750 million in annual revenue and require them to pay at least 15% in tax, no matter where they operate.
Even if your company is currently enjoying tax breaks in the UAE, that could change once these rules come into effect (likely in 2025). If you fall into this revenue bracket, it’s time to start preparing. Think compliance systems, reporting processes, and possibly even structural changes.
How Should Businesses Respond?
Let’s be honest. Many companies in the UAE have never dealt with corporate tax before. They’ve grown in a tax-free environment, and this change can feel overwhelming. But there are a few practical steps that can help.
First, register with the Federal Tax Authority. Even if you think you’re exempt, registration is still required. Then, take a deep dive into your finances. What does your profit picture look like? How well are your records maintained? Are your accounting systems up to the task?
You might need to invest in training your finance team or hiring outside help. The UAE tax system isn’t overly complicated compared to other countries, but it does require careful attention.
What Is the Cost of Compliance?
There’s no sugarcoating it: compliance comes with a cost. Legal advice, tax consultants, new software systems… it all adds up. And that’s before you consider the time spent understanding the rules and updating internal policies.
For businesses that reinvest most of their profits, the 9% tax might affect how much they can put back into operations. It’s a good time to revisit your budgets, dividend strategies, and even your hiring plans.
Will Prices Go Up?
It’s a fair question. If businesses are now paying taxes they didn’t before, will they pass those costs on to customers? In some industries, especially those already dealing with tight margins, the answer might be yes.
That could mean slightly higher prices in some sectors. But businesses will likely take a balanced approach, absorb some of the cost, and adjust prices slowly. Over time, the market will find its rhythm.
Final Thoughts
There’s no way around it: the introduction of corporate tax is a major shift for businesses in the UAE. But with the right planning and support, it doesn’t have to be painful.
This is the time to get proactive. Look at your governance structure. Get your financial house in order. And stay up to date with the next round of global tax developments.
Because here’s the truth: the cost of getting it wrong is far higher than the cost of getting ready.