As we step into the third (3rd) year of the UAE’s Corporate Tax regime, the business landscape is evolving beyond headline figures. While the 9% rate and freezone exemptions continue to dominate headlines, a deeper shift is taking place, one that calls for more than just technical and systems compliance.
From Registration deadlines to Tax Relief Elections, the implementation timeline is now demanding proactive review and Tax Health checks, being the first year of Tax filings.
A. From Theory to Practice: The Reality of Compliance
For many businesses, especially SMEs and startups, focused on interpreting the law and awaiting regulatory clarity. As we enter the middle of 2025, the environment has matured significantly, tax filing calendars are now firmly in place, registration deadlines are closing fast, and the Federal Tax Authority (FTA) has shifted into enforcement mode, with real consequences for non-compliance despite the recent relief from fines relating to delayed registrations.
- Calendar-year entities must file their first corporate tax return by 30th September 2025.
- Non-calendar-year businesses, such as those with a 30th June year-end, face earlier tax filing deadlines, with 31st March 2026 being the applicable due date in this case for their 2nd tax filings.
More importantly, even businesses with no tax payable are not exempt from registration obligations. The FTA has made it clear that late registration will trigger penalties.
It is important that companies review their tax status, documentation compliance and overall preparedness to mitigate any risk of penalties and mis-filings through a thorough Tax health checkup.
B. The Fine Print of Small Business Relief
Companies with annual revenue under AED 3 million can elect to be treated as having nil taxable income under Article 21 of the UAE Corporate Tax Law and Ministerial Decision No. 73 of 2023, offering welcome relief to startups and early-stage businesses.
However, the relief is not automatic and is available only for one year. For each subsequent year, the business must elect to apply the Small Business Relief (SBR), based on its financial year, and financial statements must be prepared.
The election comes with detailed requirements and anti-avoidance provisions, including a permanent loss of relief if revenue exceeds AED 3 million in any two tax periods (Article 4, Ministerial Decision No. 73 of 2023).
C. Free Zone Entities: The 0% Illusion
Free zones were once considered a tax haven in the UAE, but the introduction of Corporate Tax has blurred the lines. While Qualifying Free Zone Persons (QFZPs) can still enjoy a 0% tax rate on qualifying income, the requirement for qualifications is more nuanced than expected.
Key considerations and Provisions include:
- QFZP Status (Article 18): To qualify a business must maintain substance, earn qualifying income, not elect 9%, and comply with transfer pricing rules (Article 34 & 55).
- Qualifying Income- Non-Exhaustive list (CD 100/2023): Qualifying Income includes Income earned from Free Zone Persons (non-excluded activities), from non-FZPs for approved activities, from qualifying Intellectual Property (IP). (Note: If the income is earned through a Permanent Establishment (PE) outside the Free Zone (like a Mainland branch), or is from excluded activities, it is automatically taxed at 9%.)
- Qualifying Activities-Non-Exhaustive list (MD 265/2023): Qualifying activities include operations like manufacturing, logistics, fund management, holding shares, headquarters services, ship operations, reinsurance, intra-Free Zone trading, distribution within Free Zones, and treasury functions. Income from these activities may benefit from the 0% Corporate Tax rate, provided other conditions for Qualifying Free Zone Person status are met.
- Excluded Activities – Non-Exhaustive list (MD 265/2023): Excluded activities include Banking, insurance, finance, IP exploitation, and ancillary to excluded activities. Free Zone entities earning income from these activities are not eligible for the 0% tax rate, and such income will be taxed at 9%, regardless of QFZP status.
- Income Segregation: Segmentation is required as non-qualifying income is taxed at 9%. While separate financial statements are not mandatory, maintaining clear and distinct accounting records and cost allocations between qualifying and non-qualifying activities is essential.
- Possible restructuring could include setting up a separate branch for non-qualifying activities.
It’s no longer about being in a free zone; it’s about doing business the right way within one.
A New Financial Compliance Mindset is essential: Monthly Close with a Tax Lens
Corporate tax is no longer an annual afterthought. Just as companies regularly track sales or expenses, tax needs to be part of the monthly closing process.
The organization should also implement internal controls relating to tax processes and procedures, to ensure the tax reporting is timely, accurate & complete, after due process of approval by Finance & Tax leaders.
Delaying adjustments until year-end could lead to missed elections, errors, misstatements, or even worse may result in heavy penalties and fines.
Expert Insights, Tailored Solutions: Kuvera Consulting
At Kuvera Consulting, we advise clients to embed tax considerations in accounting and implement internal controls into their monthly closing process, not just their year-end. The September 2025 filing being the first tax return establishes a baseline for the future public scrutiny, where investors will assess effective tax rates as closely as they now examine EBITDA margins.
This level of discipline is especially critical in M&A transactions, where misaligned tax positions can derail valuations and delay deals. We help businesses stay ahead of deadliness with proactive compliance strategies. The UAE’s tax journey has shifted from discovery to discipline. The question now is: Are you prepared to operate in a taxed economy?