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VAT vs. Corporate Tax in the UAE: What Every Business Owner Needs to Know
The UAE is a popular destination for businesses looking to set up operations, but it has its own set of rules and regulations. As a business owner, it is important to understand the local laws, including the taxes your company must pay while operating in the UAE.
Two key taxes that businesses in the UAE need to be aware of are corporate tax and VAT. These taxes are crucial for generating revenue, but they work in different ways and impact the economy and society. In this blog, we will explain what these taxes are and highlight the difference between VAT and tax. So, let us get started!
Understanding VAT and corporate tax in the UAE
To understand the main differences between VAT tax in UAE, let us first explain what each tax means according to the law:
- VAT (Value-Added Tax): This is a tax placed on the sale and import of goods and services at every step of the supply process, including when goods are supplied within the country. Essentially, it applies whenever goods or services are bought or sold.
- Corporate tax: This tax is charged on the income or profits that a business makes. It applies to the earnings of companies and other legal entities.
Simply put, value added tax UAE is a tax on the sale and purchase of goods and services throughout the supply chain. Corporate taxation in UAE, on the other hand, is a tax on the income a business earns.
Corporate tax
Businesses in the UAE did not have to pay corporate tax in the past, but this is changing. The UAE government has introduced a federal tax on business profits. On December 9, 2022, the Federal Tax Authority issued the Corporate Tax Decree Law.The purpose of this new tax is to shift the UAE’s economy away from relying mainly on oil and towards other sources of income. By investing in technology and innovation and introducing a corporate tax, the government is creating a more diversified economy. This tax will help increase the country’s revenues beyond just oil profits.
Corporation tax UAE is based on the profits of a business. The standard corporate tax rate in Dubai is 9% for businesses that make more than AED 375,000 in profit. The tax does not directly affect customers but applies to the business’s profits.The corporate tax applies to all business activities across the UAE, except the following:
- Companies involved in natural resource extraction are taxed by the emirates where they operate.
- Individuals earning personal income, such as salaries or investment profits, are not required to pay corporate tax.
- Businesses in free zones are exempt from the corporate tax.
Value Added Tax (VAT)
- For businesses, like logistics companies, value added tax in UAE affects cash flow because they must collect tax on their sales and offset it with the tax paid on their purchases. VAT is a general tax on consumption, meaning it applies to most goods and services. Businesses must register for VAT if their taxable sales and imports exceed AED 375,000.
- If a business operates in a UAE-free zone, its transactions are not subject to VAT and are tax-free. Before VAT, the UAE only had taxes on specific industries, like oil & gas and banking, which did not affect all businesses. However, VAT has now impacted every business in the country and has changed the business environment.
- At the end of each tax period, businesses registered for VAT must submit a VAT return to the Federal Tax Authority (FTA). This tax provides the government with extra revenue to fund its various projects and initiatives.
Simply put, value added tax in UAE is a tax business charge on goods and services, with some exemptions for specific sectors. It is ultimately paid by customers and directly affects them by raising the prices of goods and services in the UAE. Although the VAT rate is 5%, tourists can claim back 85% of the VAT they paid on products purchased in the UAE.
Conclusion
VAT and corporation tax UAE are important for generating government revenue. Both businesses and consumers need to understand how these taxes affect the economy and society. By understanding the points discussed in this blog, we can better see how each tax shapes the UAE’s economic environment.
At MMI Corporate Services we are proud to be your trusted guide in managing taxes and accounting in the UAE. Our team of experts is well-versed in UAE tax laws and regulations, and we offer customized solutions to meet your needs. Partner with us today and see the difference for yourself!
VAT and Corporate Tax are key pillars of business compliance in the UAE. Our service ensures that your tax registration, calculation, filing, and payment are done accurately, on time, and in full accordance with UAE laws, removing stress and avoiding penalties.
Our Tax Excellence Principles
1. Understanding Your Tax Needs
78% of tax issues arise from unclear regulations. We begin with a full assessment of your business model to determine the exact VAT and Corporate Tax obligations.
2. Accurate Calculations Every Time
Our experts track all transactions, ensuring every taxable entry is precise — preventing overpayment or compliance gaps.
3. Timely filing and payment
The deadline is non-parasic. We ensure that the VAT and company tax return has been submitted in advance, which keeps you punished.
4. Continuous monitoring of match
We are updated on each change in tax law, so your business always matches the latest UAE rules.
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