Who pays income tax in the UAE?

Income Tax in the UAE: What Is Actually Taxed?

If you live or work in the UAE and are wondering about income tax, the short answer may surprise you. The situation is neither as simple as some claim nor as complicated as others make it seem. Let us set the record straight.

The Quick Answer

The UAE does not impose income tax on individuals. Your salary, bonus, rental income from personal property, and personal investment returns are all exempt. However, since June 2023, a corporate income tax of 9% has applied to profits exceeding AED 375,000 per year, under Federal Decree-Law No. 47 of 2022. Individuals conducting business activity with revenues exceeding AED 1,000,000 per year also fall within scope. That is the essence of it.

Do Individuals Pay Income Tax in the UAE?

No. Frankly, this is one of the most prominent advantages of UAE residency. There is no tax on salaries, pensions, rental income from personal property, or gains from selling shares or real estate in a personal capacity.

The Ministry of Finance has been clear on this point: the tax introduced in 2023 targets business profits, not the personal income of individuals ^[1].

Be careful, however — and this is where many clients go wrong in my experience — if you operate as a freelancer or run a business under a trade licence in your own name, you are in an entirely different position. Revenues exceeding AED 1,000,000 per year from a business activity are treated for tax purposes in the same manner as a corporate entity.

Corporate Tax: 9%, but Not for Everyone

Corporate tax in the UAE applies to financial periods beginning on or after 1 June 2023. The bands are straightforward:

• 0% on profits up to AED 375,000.
• 9% on anything above that threshold.
• A separate rate (not yet fully activated) applies to large multinational companies subject to Pillar Two of the OECD agreement.

Companies registered in Free Zones may benefit from a 0% rate on "qualifying income" if they meet the conditions for "Qualifying Free Zone Person" status set out in Cabinet Decision No. 100 of 2023 ^[2]. The conditions are precise — do not assume that merely being located in a Free Zone exempts you.

Registration with the Federal Tax Authority (FTA) is mandatory for every taxable company, even if its profits are zero. The penalty for late registration is AED 10,000 under Cabinet Decision No. 75 of 2023.

Important: The exemption on the first AED 375,000 does not mean you are exempt from filing. Registration and submission of the annual tax return are mandatory regardless of profit level.

What About VAT?

Many people confuse income tax with Value Added Tax (VAT). VAT has been in force since January 2018 at a rate of 5% on most goods and services; it is a consumption tax — you pay it as a consumer, and businesses collect it on behalf of the government ^[3]. It has no connection to income tax or corporate profits tax.

If you run a business and your taxable turnover exceeds AED 375,000 per year, VAT registration is mandatory. At AED 187,500 it becomes optional.

When Should You Consult a Lawyer?

Specifically in these situations:

• You are a freelancer with revenues approaching AED 1,000,000 per year.
• You own a Free Zone company and want to confirm eligibility for the 0% rate.
• You have income sourced from outside the UAE and are uncertain about your tax residency status.
• You are planning to restructure your company before the end of the financial year.

Interpretive decisions issued by the Federal Tax Authority are updated monthly, and an error in classification can cost you penalties of up to AED 50,000 per violation.

Do you need a review of your specific situation? Speak with a licensed UAE lawyer ←

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