UAE Corporate Tax Reform 2025: Key Changes and Timeline

For years, the UAE has stood out as a business-friendly haven, attracting global entrepreneurs with its 0% corporate tax policy and streamlined regulatory environment. However, as global tax standards evolve, the UAE is making strategic changes to remain competitive, compliant, and credible on the international stage.

Following the implementation of a 9% federal corporate tax on business profits exceeding AED 375,000 in 2024, the UAE has introduced a 15% Domestic Minimum Top-Up Tax (DMTT) in 2025. This new tax targets large multinational enterprises (MNEs), ensuring alignment with the OECD’s Pillar Two global tax framework.

This reform is about enhancing transparency, preventing base erosion, and supporting the UAE’s long-term economic sustainability. At the same time, new tax incentives and stricter compliance requirements demand that businesses reassess their tax strategies.

In this post, we’ll walk you through the key changes introduced under the 2025 UAE corporate tax reform, who’s impacted, important deadlines to remember, and the strategic actions your business should take to stay compliant and tax-optimised.

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A Quick Recap of UAE Corporate Tax Introduction

In 2023, the UAE officially introduced a federal corporate tax, marking a significant shift from its long-standing tax-free business environment. 

Businesses are now required to file corporate tax returns for financial years beginning on or after June 1, 2023. A baseline tax rate of 9% applies to taxable profits exceeding AED 375,000. 

This reform aims to enhance fiscal transparency, align with international tax standards, and diversify government revenue beyond oil and tourism.

Here's what the current structure looks like:

• 0% tax on taxable income up to AED 375,000
• 9% tax on income exceeding AED 375,000
• 0% tax for Qualifying Free Zone Persons (QFZPs) meeting specific criteria
• Exemptions for government entities, extractive industries, and certain public benefit organisations

The UAE also clarified that freelancers, sole proprietors, and individuals earning over AED 1 million annually from business activities must register for corporate tax by March 31, 2025, or face a penalty of AED 10,000.

While the introduction of corporate tax marked a big transition, 2025 brings even more significant changes, especially for multinational enterprises (MNEs) operating in the region. Let's explore those next.

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Understanding the Domestic Minimum Top-Up Tax (DMTT) in 2025

As part of the UAE corporate tax reform 2025, the UAE will implement the Domestic Minimum Top-Up Tax (DMTT) starting January 1, 2025, a pivotal move that aligns the country with the OECD’s Pillar Two global tax framework.

The DMTT is designed to ensure that large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% on profits earned in the UAE. If an MNE’s effective tax rate falls below this threshold, the DMTT applies as a “top-up” to meet the 15% standard.

This measure prevents profit shifting and tax base erosion by ensuring that UAE-based subsidiaries of global companies contribute a fair share of tax, even if they currently benefit from Free Zone tax incentives or other deductions.

Without a domestic top-up, foreign jurisdictions could impose their own top-up tax on profits earned in the UAE, reducing the country’s attractiveness as a business base. DMTT ensures that tax is retained locally

Who Is Affected?

• Multinational enterprises (MNEs) with consolidated global revenues of €750 million (≈ AED 2.99 billion) or more in at least two of the past four years
• Free Zone companies that currently enjoy a 0% corporate tax rate but are part of a larger MNE group may face DMTT if the group’s effective tax rate in the UAE falls below 15%
• MNEs with low effective tax rates due to deductions, credits, or other tax incentives

Key Implications

• Increased compliance obligations: Affected MNEs must reassess their UAE tax positions, calculate their global effective tax rates, and prepare for DMTT filings.
• New reporting standards: Financial statements must align with OECD GloBE Model Rules using IFRS, and additional documentation (master file, local file, CbCR) is now essential.
• Potential restructuring: MNEs operating through Free Zones may need to re-evaluate their structures to avoid triggering the top-up tax.

By implementing the DMTT, the UAE reinforces its commitment to global tax transparency while continuing to position itself as a competitive jurisdiction for multinational businesses. But staying compliant with the UAE corporate tax reform 2025 requires more than just understanding the law, it demands strategic preparation.

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Who Is Exempt and Who Is Not?

The UAE’s corporate tax regime is broad, but it also offers targeted exemptions to support specific sectors and business types. Understanding who is exempt from corporate tax—and who must comply—is essential to avoid missteps and penalties.

Entities That Are Exempt From Corporate Tax:

1. Qualifying Free Zone Persons (QFZPs): Businesses registered in UAE Free Zones can continue enjoying a 0% corporate tax rate, but only if they meet specific Federal Tax Authority (FTA) conditions.
   
   • They must earn qualifying income from activities within the Free Zone or with overseas entities.
   • Income from UAE mainland transactions may be taxed unless it falls under a qualifying category (e.g., warehousing, limited distribution).
   • Failure to meet these criteria results in full taxation at the standard 9% rate.
2. Government entities and public institutions: Entities wholly owned and operated by the government, and performing sovereign or public benefit activities, are fully exempt.
3. Extractive businesses: Oil, gas, and other extractive sector companies are taxed under emirate-level taxation regimes, and thus remain outside the federal corporate tax net.
4. Charities and non-profit organisations: Non-profit entities may be exempt, provided they are approved by the FTA and their activities are aligned with public benefit purposes.
5. Small businesses below the threshold: Companies and individuals earning less than AED 375,000 in annual taxable profits are exempt from paying corporate tax. However, they may still need to register with the FTA for compliance purposes.

Entities That Are Subject to Corporate Tax:

1. Mainland businesses: All mainland entities engaged in commercial, professional, or industrial activity are subject to the 9% corporate tax on profits exceeding AED 375,000.
2. Free zone companies with non-qualifying income: Even Free Zone entities lose their tax-free status if they:
   
   • Earn income from the UAE mainland without qualifying as a limited distribution business.
   • Fail to meet the QFZP criteria as defined by the FTA.
3. Foreign companies With UAE presence: If a foreign company has a permanent establishment (PE) in the UAE or earns UAE-sourced income, it must comply with the corporate tax law.
4. Freelancers, consultants, and sole proprietors: Individuals operating licensed businesses, if their annual revenue exceeds AED 1 million, must register and may be subject to corporate tax by March 31, 2025, or face a fine of AED 10,000.

In short, while the UAE remains one of the world’s most tax-efficient jurisdictions, the new corporate tax framework requires every business, especially Free Zone and SME entities, to understand their classification and act accordingly under the UAE corporate tax reform 2025.

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Tax Incentives Announced for 2025–2026

While the UAE’s new corporate tax framework introduces higher compliance responsibilities, it also brings strategic incentives to drive innovation, talent acquisition, and economic diversification. 

These incentives are designed to support businesses that invest in high-value activities, particularly in sectors that align with the UAE’s long-term development goals.

1. Refundable Tax Credit for High-Value Employment (Effective 2025)

To attract top global talent and boost competitiveness, the UAE is introducing a refundable tax credit for companies hiring highly skilled professionals.

• This incentive applies to C-suite executives, specialists, and high-value roles in sectors such as technology, finance, R&D, and healthcare.
• Eligible businesses can claim back a portion of the salaries or related expenses through corporate tax filings.
• The goal is to encourage the hiring of knowledge-based roles that contribute to long-term economic value creation.

2. R&D Tax Incentives (Effective 2026)

The UAE aims to become a hub for innovation, and this incentive reflects that ambition.

• Businesses that invest in research and development activities will be eligible for expenditure-based tax credits ranging from 30% to 50%.
• The credit applies to qualifying R&D expenses, such as scientific research, product innovation, and technological advancements carried out within the UAE.
• This benefit will be especially impactful for startups, tech companies, pharmaceutical firms, and manufacturing industries focused on continuous innovation.

These tax incentives reduce the effective tax burden for eligible businesses and signal a major shift in the UAE’s fiscal strategy, from passive tax neutrality to active economic steering through incentives.

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What Multinational Enterprises (MNEs) Must Prepare For

If your business is part of a group with consolidated global revenues of €750 million (approx. AED 2.99 billion) or more in at least two of the past four years, here’s what you need to prepare for:

1. Assess Effective Tax Rates (ETR) Across Jurisdictions

You need to calculate your effective tax rate in the UAE and other operating regions.

If your ETR falls below the 15% threshold, your business will be liable for a top-up tax to bridge the gap. This requires detailed analysis of profits, exemptions, and deductions under the UAE’s corporate tax regime.

2. Reevaluate Free Zone Strategies

Many MNEs benefit from 0% corporate tax rates in UAE Free Zones.

However, under Pillar Two, this may no longer shield the group from top-up tax obligations.

You must reassess whether existing Free Zone entities still provide a global tax advantage, or if restructuring is needed to remain efficient and compliant.

3. Ensure Transfer Pricing Compliance

Transfer pricing will come under heightened scrutiny. All related-party transactions must meet arm’s length standards, supported by:

• A Master File detailing your global group structure and operations
• A Local File documenting intercompany transactions within the UAE
• Country-by-Country Reporting (CbCR) if group revenue exceeds the €750 million threshold

These documents must be maintained in line with OECD guidelines and submitted upon request to the Federal Tax Authority (FTA).

4. Prepare Financial Statements under IFRS

All tax filings, including those under DMTT, must be based on audited financial statements prepared under IFRS.

Your finance teams must ensure accounting systems and reporting practices are fully aligned, accurate, and audit-ready.

5. Implement Group-Wide Compliance Monitoring

The complexity of global tax reform means MNEs need centralised oversight and internal controls to monitor tax obligations across jurisdictions.

This includes automating tax calculations, real-time tracking of local tax rates, and creating governance protocols to handle cross-border compliance risks.

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Simplify Tax Compliance and Financial Control with Alaan

The UAE corporate tax reform 2025 introduces new layers of complexity for startups to MNEs. Navigating these changes requires tighter financial control, real-time visibility, and bulletproof compliance. That’s exactly where Alaan comes in.

We’ve built an all-in-one corporate spend management platform designed for the UAE’s new tax era, giving you full control over company expenses while automating the time-consuming tasks that hold your finance team back.

Here’s how Alaan supports your finance team:

• Real-time expense tracking: Monitor every dirham spent across teams, departments, or projects instantly and in one place.
• Automated VAT categorisation: Transactions are auto-tagged for VAT compliance, making filings faster and more accurate.
• Receipt matching & audit-ready reports: No more missing receipts or manual data entry, Alaan stores all documentation in a centralised, searchable dashboard.
• Customisable spending policies: Set granular spending limits, restrict vendors, and create approval workflows tailored to your company’s structure.
• Integration-ready: Sync seamlessly with your accounting and ERP systems for accurate reconciliation and effortless financial reporting.

With Alaan, you spend smarter, automate tax readiness, and give your finance team superpowers, all while staying compliant with the UAE’s evolving tax landscape.

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Conclusion

The UAE’s 2025 corporate tax reform marks a turning point in the region’s business landscape. As the country aligns with global standards through the 15% Domestic Minimum Top-Up Tax and full enforcement of the 9% federal corporate tax, businesses must shift from reactive to proactive financial management.

Whether you're a startup assessing your free zone eligibility, an SME preparing for VAT audits, or a multinational enterprise dealing with transfer pricing and global reporting obligations—the need for structured, compliant, and tech-enabled tax management has never been greater.

At Alaan, we help you simplify this transition. Our AI-powered spend management platform automates tax tracking, streamlines expense reporting, and ensures VAT and corporate tax compliance, saving your team hours every month. 

You get real-time visibility into your financials, enforce smart spending controls, and integrate seamlessly with your accounting systems to stay audit-ready at all times.

Want to stay ahead of compliance while simplifying your finance workflows? Book a free demo with Alaan today.