22 Sep 2025
Since the adoption of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, the corporate tax regime has changed considerably. With the issuance of Ministerial Decision No. 229 of 2025, compliance requirements for businesses have evolved further in 2025.
These amendments are significant steps aimed at adjusting to global standards in taxation, and clarifying on eligible activities of the free zone businesses. To companies that are in the UAE, it is important to be able to comprehend these compliance changes to not face penalties and take advantage of the available benefits.
The Evolution of Corporate Tax in the UAE
The main target of introducing corporate tax by the UAE with the Federal Decree-Law No. 47 in the year 2022 was to diversify revenue and to introduce transparency. The law established:
• A 0% tax rate on profits up to the threshold of AED 375,000.
• A 9% tax rate on taxable income above that threshold.
• Special rules for Qualifying Free Zone Persons, allowing 0% tax on qualifying income while taxing non-qualifying income at 9%.
This foundation has since been strengthened with amendments and ministerial decisions to address emerging challenges and global tax requirements. Furthermore, this has increased the importance of corporate tax services in the UAE.
What is Top-up Tax?
The Federal Decree-Law No. 60 of 2023 introduced two critical definitions:
• Top-up Tax: An additional tax ensuring multinational enterprises (MNEs) pay at least a 15% effective tax rate, consistent with OECD’s Pillar Two framework.
• Multinational Enterprise: Entities with cross-border structures that meet thresholds specified by Cabinet decisions.
The Cabinet is authorized to control exemptions, procedures, and limits on this tax. In the case of global businesses this is a move to more rigorous compliance and an end to the opportunistic low tax arbets.
Revenue Sharing Between Federal and Local Governments
In another modification of Decree-Law No. 60 of 2023 , corporate tax, Top-up Tax, and penalties are divided between the federal and local governments. This highlights the collaborative fiscal mechanism amid Emirates which offers insight into how the proceeds collected in taxation will be shared.
Qualifying vs. Excluded Activities in Free Zones
Perhaps the most impactful compliance update is Ministerial Decision No. 229 of 2025, which redefines qualifying and excluded activities for free zone businesses. This directly influences whether a free zone entity is entitled to the 0% rate or is taxed at 9%.
1. Qualifying Activities (Eligible for 0% on Qualifying Income)
Free zone businesses can benefit from preferential tax treatment if engaged in:
• Manufacturing or processing of goods.
• Trading of Qualifying Commodities (including metals, minerals, industrial chemicals, and environmental commodities like carbon credits).
• Holding of shares and securities for investment.
• Ownership, management, and operation of ships.
• Reinsurance, fund management, and wealth management services.
• Treasury and financing services to related parties.
• Financing and leasing of aircraft.
• Distribution of goods from designated zones.
• Logistics services.
2. Excluded Activities (Subject to 9% Tax)
On the other hand, the following activities automatically fall outside the 0% regime:
• Transactions with natural persons (with limited exceptions).
• Banking activities.
• Insurance activities beyond permitted reinsurance.
• Finance and leasing activities outside the qualifying conditions.
• Ownership or exploitation of immovable property, except for certain free zone commercial property transactions.
De Minimis Rule for Free Zone Entities
To maintain the 0% tax rate, a Qualifying Free Zone Person must ensure that revenue from non-qualifying activities does not exceed:
• 5% of total revenue, or
• AED 5 million, whichever is lower.
Failure to meet this requirement means the entity loses its preferential status for that tax period.
Intellectual Property and Qualifying Income
Ministerial Decision No. 229 also marked out comprehensive regulations of income of Qualifying Intellectual Property (IP). Companies should make sure that research and development costs are linked to the development of IP so that it can enjoy preferential tax treatment.
This is particularly relevant for innovation-driven companies, as only qualifying expenditures linked to creation and development are eligible, while unrelated expenses are excluded.
CT Compliance UAE: What Businesses Must Do in 2025
The new tax framework demands businesses take proactive measures to remain compliant. Key steps include:
• Reviewing Activity Classification: Businesses must assess whether their operations fall under qualifying or excluded categories.
• Maintaining Adequate Substance: Free zone companies must demonstrate genuine operational presence in the UAE.
• Meeting Financial Reporting Standards: Entities are required to maintain audited financial statements, as mandated by Ministerial Decision No. 84 of 2025.
• Monitoring Revenue Thresholds: Ensure the de minimis rule is met to avoid loss of free zone benefits.
• Preparing for OECD Alignment: Multinationals must prepare for Top-up Tax obligations to meet the 15% global minimum tax.
Preparing for a New Era of Taxation
The corporate tax in the UAE for 2025 is more structured, internationally aligned, and compliance-driven than ever before. With the introduction of the Top-up Tax, redefined qualifying activities, and strict substance requirements for free zone entities, businesses can no longer adopt a passive approach.
Alternatively, companies have to incorporate tax compliance into their overall strategic plans, which include proper financial reporting, tracking critical levels and staying on par with OECD global tax redesign. Early actors will be in a better position not just to survive the compliance mechanisms, but also to gain competitive forces.
Contact AMCA Auditing for Compliance Success
Navigating the complexities of CT compliance in the UAE can be overwhelming, but you don’t have to do it alone. At AMCA Auditing, we specialize in guiding businesses through the evolving tax landscape, from activity classification to audited financial statements.
Take the next step—contact AMCA Auditing today to secure your compliance and peace of mind.
FAQs
1. What is the corporate tax rate in the UAE in 2025?
The standard rate is 9% on taxable income above AED 375,000, while income below that threshold remains at 0%. Qualifying Free Zone Persons may still enjoy 0% on qualifying income.
2. How does the Top-up Tax affect multinational companies?
The Top-up Tax applies to multinational enterprises (MNEs) with consolidated revenues of at least €750 million (approximately AED 2.9 billion).
Effective Tax Rate Requirement: These MNEs must ensure an effective tax rate (ETR) of at least 15% on their profits.
Application of Top-up Tax:
• If the UAE corporate tax, after accounting for deductions and incentives, results in an ETR below 15%, the Top-up Tax is imposed to bring the total tax paid up to the 15% minimum rate.
• This ensures that MNEs operating in the UAE cannot excessively reduce their global tax liability through local incentives or deductions.
Objective: The mechanism aligns the UAE’s tax framework with the OECD’s Global Minimum Tax rules, ensuring transparency and fairness for large multinational businesses.
3. What happens if a Free Zone company earns revenue from excluded activities?
Any revenue from excluded activities is subject to 9% corporate tax, regardless of other qualifying operations.
4. What is the de minimis threshold for non-qualifying revenue?
The threshold is 5% of total revenue or AED 5 million, whichever is lower. Exceeding this disqualifies the entity from preferential tax treatment.
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