What the AED 375,000 corporate tax threshold means for taxable income

Many UAE business owners and managers have seen references to the AED 375,000 threshold in new corporate tax rules. This threshold is often misunderstood. It does not apply to your company's total revenue or turnover. Instead, it sets the point at which your taxable income (profit after allowable expenses and adjustments) becomes subject to a 9% corporate tax rate.

The corporate tax threshold: What is taxable income?

The introduction of corporate tax in the UAE applies a 0% rate to taxable income up to AED 375,000, and a 9% rate on any taxable income above that figure. Taxable income is your business’s net income or profit, calculated after deducting allowable expenses and making statutory adjustments. It is not the same as gross receipts, sales revenue or turnover.

For example, a trading company might generate AED 2,000,000 in sales in a year, but after deducting costs of goods sold, salaries, rent and other allowed expenses, its taxable income could be AED 200,000. In this case, all taxable income would fall under the AED 375,000 threshold, and no corporate tax would be charged.

If the taxable income was AED 500,000 instead, the company would pay 0% on the first AED 375,000, and 9% only on the remaining AED 125,000.

Why the distinction with revenue matters

Revenue or gross receipts refer to the full amount your company earns from its business activities, before any expenses. Taxable income is a much smaller amount for many businesses, as it factors in eligible expenses that reduce the figure liable to tax.

Mistaking revenue for taxable income can lead to overestimating your tax liability, or panicking unnecessarily. For instance, a marketing agency might have annual revenue of AED 1,000,000, but with high staff costs, rent and marketing spend, its taxable income could be well below the exemption threshold.

The threshold is not a test of how much money comes into the business each year, but how much profit is left after all applicable deductions. The Ministry of Finance, Federal Tax Authority and the official UAE Government Portal all state that the AED 375,000 threshold applies to taxable income, not revenue.

How the corporate tax is applied

The application is stepped:

• 0% corporate tax rate applies on taxable income up to AED 375,000
• 9% corporate tax rate applies on taxable income above AED 375,000

If a business has AED 400,000 in taxable income for the year, only the amount above AED 375,000 (that is, AED 25,000) is taxed at 9%. The first AED 375,000 is always at 0%.

This means effective tax rates for small and medium enterprises are often lower than 9%. Only the portion of profit above the threshold attracts tax, not the entire profit amount, and certainly not total sales.

Who the threshold applies to

The corporate tax regime applies to most UAE-based businesses, including:

• Companies and individuals conducting business activities under a commercial licence
• Most free zone businesses (with specific incentive rules if other criteria are met)
• Foreign entities with permanent operations in the UAE
• Banks and real estate businesses

Certain exempt entities do not pay corporate tax at all. These include some government-related entities, qualifying funds and investment vehicles, subject to regulatory approval and notification processes.

Corporate tax administration in practice

Since the start of financial years beginning on or after 1 June 2023, all UAE businesses who are not expressly exempt fall under the corporate tax regime. The Federal Tax Authority manages the administration, registration and enforcement of corporate tax.

Careful distinction between revenue and taxable income is essential when assessing your tax exposure. Overlooking deductible expenses or confusing gross with taxable figures may lead to incorrect filings or suboptimal planning.

For owners and finance leads, the key figures to track are:

• Annual taxable income, after all allowable expenses
• The portion of taxable income above AED 375,000 (which is taxed at 9%)

Annual registration and compliance with filing obligations is still required, even if a business’s taxable income does not exceed the threshold or if it claims reliefs (such as small business relief, if separately eligible).

Taken together, these rules mean that it is your actual profit, after proper statutory calculation, that triggers the 9% UAE corporate tax, not headline sales or turnover.