UAE Business Tax Incentives: How to Save More in 2025

Business Tax

UAE Business Tax Incentives: How to Save More in 2025

The best things about having your business in the UAE are zero personal income tax, a strategic location, and a thriving economy. However, things have changed with the introduction of the corporate tax.

Businesses with consolidated global revenues of €750 million or more should provide a 15% minimum tax on the profits. Then, enterprises earning over AED 375,000 annually should now contribute a 9% tax. The latter is significant for small and medium businesses in the UAE. 

But there is good news. Reflechir has been providing Corporate Tax and Accounting services for many years. We’ll help you calculate how much tax to pay, and in this guide, we’ll tell you how you can reduce your tax, and even qualify for exemptions. 

Are there Tax Incentives for Businesses in the UAE

Yes. UAE is the best place to do business. Even with new corporate tax laws, the government has given many incentives to support businesses. That’s the beauty of the UAE. 

Now, we’ll tell you the different tax incentives available in 2025, who qualifies for them, and how you can take advantage of these opportunities to get more profits.

Tax Incentives for Freezone Businesses

If you have a business within the UAE Free Zones, you can get significant tax advantages. Companies registered in these zones are still taxable entities under the UAE Corporate Tax (CT) Law.

We’ll tell you how a Free Zone entity can qualify as a Qualifying Free Zone Person (QFZP) and benefit from a 0% corporate tax rate on qualifying income. Non-qualifying income is taxed at a 9% rate.

Conditions to Qualify as a QFZP:

  1. Adequate Substance: The business should maintain sufficient physical presence in the Free Zone, including adequate assets, qualified employees, and operational expenditures.
  2. Qualifying Income: Income should be derived from eligible activities as defined under the CT Law.
  3. Election Status: The entity must not have opted to be subject to the standard UAE CT regime.
  4. Compliance: Adherence to all transfer pricing rules and documentation requirements is mandatory.
  5. De Minimis Requirements: Non-qualifying revenue should not exceed 5% of total revenue or AED 5 million, whichever is lower.
  6. Audited Financial Statements: Preparation of audited financial statements is required.

What is Qualifying Income?

Qualifying income includes:

  • Transactions with Other Free Zone Persons: Income from dealings with other entities within Free Zones, excluding income from ‘excluded activities’.
  • Transactions with Non-Free Zone Persons: Income from specific ‘qualifying activities’ with entities outside Free Zones, provided these are not ‘excluded activities’.
  • Intellectual Property (IP): Income from the ownership or exploitation of qualifying IP.
  • Other Income: Any other income, provided the de minimis requirements are met.

Excluded Activities:

Certain activities are excluded from the 0% tax incentive, including:

  • Transactions with natural persons, except for specific exceptions related to shipping, aircraft, and fund management.
  • Regulated banking, finance, leasing, and insurance activities.
  • Ownership or exploitation of immovable property, except for transactions with Free Zone persons concerning commercial property located in a Free Zone.

Qualifying Activities:

Activities eligible for the 0% tax rate include:

  • Manufacturing or processing of goods or materials.
  • Trading of qualifying commodities.
  • Holding of shares or securities for investment.
  • Ownership, management, and operation of ships.
  • Reinsurance, fund management, finance, and investment.
  • Headquarter, treasury, and financing services.
  • Financing and leasing of aircraft.
  • Logistics.
  • Businesses can benefit from the 0% tax rate when they distribute goods or materials from a Designated Zone to customers who either resell them or modify them before selling them again.

Other Tax Incentives in the UAE

Here are some other tax benefits that the UAE govt has initiated to foster business growth and attract foreign investment:

  • Foreign Tax Credit

If your UAE-based business pays taxes abroad on income also taxable in the UAE, you can claim a foreign tax credit. This credit offsets your UAE Corporate Tax (CT) liability but is capped at the amount of CT due on that income. Unused credits cannot be carried forward or backward.

  • Small Business Relief

For small businesses, if your revenue doesn’t exceed AED 3 million during the relevant and previous tax periods, you can elect to be treated as not having derived any taxable income. This means you’re not subject to UAE CT for that period. However, if your revenue surpasses this threshold, standard CT rates apply.

  • Intra-Group Transfers

The UAE CT Law offers tax relief for asset or liability transfers within a qualifying group. To qualify:

  • All entities must be UAE tax residents or non-residents with a Permanent Establishment (PE) in the UAE.
  • Entities should be at least 75% commonly owned, share the same financial year, and use consistent accounting standards.
  • None of the entities should be exempt persons or Qualifying Free Zone Persons (QFZPs).

If an asset or liability is transferred outside the group or if an entity leaves the group within two years of the initial transfer, the tax relief may be revoked.

  • Business Restructuring Relief

For mergers, spin-offs, and other restructurings, the UAE provides tax relief when an entire business or a part of it is transferred in exchange for shares or other ownership interests.

Conditions include:

  • The transfer must comply with UAE regulations.
  • All parties should be UAE residents or non-residents with a PE
  • None of the parties should be exempt persons or QFZPs.
  • They must share the same financial year and accounting standards.

If, within two years, there’s a subsequent transfer to a third party or disposal of received shares or interests, the initial tax relief may be reversed.

  • Research and Development (R&D) Tax Incentive

Starting in 2026, the UAE plans to introduce an R&D tax incentive. Your business can get a 30-50% tax credit on qualifying expenditures. This credit may be refundable, depending on your business’s revenue and employee count in the UAE. 

Contact Reflechir for Anything Related to Tax

Reflechir knows the rules inside and out. We’ll help you understand the regulations, make sure you’re on the right track, and find ways to save on taxes.

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