Image: Supplied
The UAE’s corporate tax landscape has undergone huge changes in recent years. While for decades the country was a go-to location for businesses seeking a tax-free jurisdiction, 2022 marked the beginning of a new era with the announcement of the country’s first-ever federal corporate tax regime.
Looking ahead, the UAE is preparing for further corporate tax reforms. The Ministry of Finance is set to introduce an R&D tax incentive and a refundable tax credit in January 2026, aimed at boosting investment and growth in key industries. Now is the right time for companies to review their tax returns and ensure they are maximising the advantages the country’s regime offers.
Why the UAE had to change course
Before 2022, the UAE was regarded as a tax haven, an attractive option for businesses due to its zero corporate tax policy. However, there was a trade-off. Without clear tax rules and formal structures in place, the UAE was seen as an opaque jurisdiction, which hindered its full integration into the global business community.
This was particularly the case given evolving global tax and transparency standards. As international frameworks become more rigorous, notably through the introduction of the OECD’s Pillar Two framework, which sought to ensure that multinational enterprises are taxed at a minimum rate, the UAE risked being seen as significantly out of step with global norms.
A new era for businesses
This all changed in 2022 when the UAE announced its first-ever corporate tax regime, set at a competitive headline rate of 9 per cent, which ranks the country among the lowest worldwide, compared with 17 per cent in Singapore, 25 per cent in the UK, and 21 per cent in the US.
The reform was designed not only to generate revenue for the government but also to address the need for a clear and transparent tax regime.
As a result, the perception of the UAE has shifted from being viewed as an opaque tax haven to being seen as a formal, stable, and predictable business environment. By aligning with OECD guidelines, the UAE is now more appealing to businesses that require transparency and a clear governance framework.
The change opens the door to higher levels of investment and positions the UAE as a credible global business hub, encouraging more multinational companies to operate in the country.
So far, this strategy appears to have yielded success, with the UAE attracting record levels of investment. For instance, foreign direct investment inflows into the UAE increased by 48.7 per cent in 2024, reaching $45.6bn.
Finding a competitive edge
Understandably, some businesses may be hesitant about the change. After all, for years, the UAE’s tax-free status was a key selling point, and moving to a tax system represents a significant shift in how companies operate.
However, businesses should not be dismayed. In addition to creating greater opportunities for them to operate transparently on a global stage, companies that engage with the regime properly will be able to leverage the tax incentives offered by the corporate tax regime and gain a competitive edge.
For small businesses, they should act quickly to capitalise on the country’s 0 per cent tax bracket on the first Dhs375,000 of income, as well as business relief on revenue below Dhs3m. These generous incentives could be game-changing advantages for emerging enterprises.
Companies should also consider whether they are eligible to participate in the free zone tax regime, which offers a zero per cent corporate tax rate on qualifying income.
To benefit, they must demonstrate that they maintain core activities, staff and assets in a free zone area, that the income meets certain criteria and that it is derived from a select number of ‘Qualifying Activities’.
There are many other tax advantages on offer, such as 0 per cent withholding tax on outbound payments of dividends and a broad exemption for dividend income and capital gains. Importantly, new incentives are being introduced.
Notably, the UAE is due to implement an R&D tax incentive in January 2026 and a refundable tax credit for high-value employment activities. These are designed to boost investment and growth in key industries.
Looking ahead
The UAE has entered a new era, shifting away from being perceived as a low-tax, opaque jurisdiction to being regarded as a credible, cooperative, and globally integrated economy.
The beauty of the new system lies in its ability to strike a balance between formalisation and a favourable environment for business. It provides the transparency and governance that international investors require, whilst also being among the most competitive corporate tax frameworks globally.
Amid further corporate tax reforms due to be implemented in 2026, businesses in the UAE should be motivated to align with the country’s push to become more globally competitive and transparent, while prioritising their own competitiveness by making the most of the tax advantages the new regime offers.
The writer is the legal director at DLA Piper.
