Entrepreneurs travel to the UAE because of the location and the fact that the UAE is one of the most investor-friendly jurisdictions on the planet. One of the main reasons why international investors look at business opportunities in the UAE is because of tax. Therefore, it is important to understand the tax options available to you if you are thinking about setting up a company in Dubai.
Until recently, most businesses in the UAE were largely exempt from the Corporate Income Tax. Starting after 1 June 2023, companies that have generated profits over AED 375,000 will be subject to a 9% federal tax. Small businesses - including start-ups - are not taxed on profits as long as their profit is less than this limit.
In the UAE, there are over 40 free zones located around Dubai, Abu Dhabi, Sharjah and other emirates. Free zones are specifically set up as geographical locations for businesses to operate with very favorable regulation and tax policies. Each free zone is established for specific sectors including technology, media, finance, logistics, healthcare and many more and provide a range of incentives for foreign investors.
The benefits of operating within the free zones includes:
Most free zones also offer streamlined company registration with modern facilities, issuing of company licenses and even work permits, which encourages creation of new firms and small and medium enterprises.
Unlike many countries, the UAE does not levy any personal income tax. This implies that employees and business owners are able to keep all of their earnings without any deductions. This results in a higher standard of living and more disposable income for new business owners.
In 2018, the United Arab Emirates implemented Value Added Tax (VAT) at a rate of 5%. Compared to global rates, this is much lower. The Organization for Economic Co-operation and Development (OECD) estimates that the average worldwide VAT rate is approximately 15%. The UAE's low VAT rate lessens the tax burden on both consumers and businesses. Startups are exempt from VAT registration requirements if their yearly revenue is less than AED 375,000. Small businesses are given breathing room before they grow thanks to this exemption.
The country has signed Double Taxation Avoidance Agreements (DTAAs) with over 130 countries. These agreements ensure that businesses are not taxed twice on the same income in two different countries. For international startups and investors, this provides financial clarity and reduced tax liabilities.
While not a direct tax advantage, the UAE’s regulatory approach supports a tax-efficient setup. Business setup consultants in Dubai often highlight how quick and straightforward the licensing process is. Many licenses are approved within a week, with minimal documentation. This efficiency reduces administrative overheads and helps startups begin operations faster.
The UAE's new corporate tax regime included a Small Business Relief to encourage entrepreneurship even more. Businesses can choose to be treated as having no taxable income and receive complete exemption from the 9% corporate tax if their revenue for a given tax period does not exceed AED 3 million (and for subsequent tax periods until 2026). Startups in their early stages of growth will especially benefit from this policy, which enables them to reinvest profits back into expanding their businesses.
The UAE continues to attract entrepreneurs from across the globe thanks to its strategic location, investor-friendly tax policies, and a robust business ecosystem. It’s crucial to understand the tax framework before setting up a company in Dubai so people can make smart, cost-effective decisions. Get expert assistance from E-Startup.
No, foreign investors are allowed to repatriate capital and profits at 100% with no limitations, especially if they are based in free zones.
Yes, free zones like Dubai Internet City have specific zones dedicated to tech startups which facilitate business operations, including tax incentives and other benefits tailored to their unique needs.
Capital requirements differ depending on the type of business and the area where it is located. Certain free zones have no capital requirements, which is favorable for startups.
Investment in businesses is favorable as the UAE does not levy taxes on dividends and capital gains, making it beneficial for investors.
While grants are not available in the UAE, certain emirates and free zones do provide subsidized office space, reduced tax, and setup cost packages to ease expenses.
Yes, even if a startup qualifies for tax exemptions, it may still be required to file a tax return or declaration to claim relief or maintain compliance under UAE tax laws.
