Tax

AED 375,000: a worked example of the UAE Corporate Tax threshold

The AED 375,000 (≈ USD 102,000) threshold is the most important boundary of the UAE corporate tax system. Below it, all companies pay 0%. Above it, it depends on the structure and the type of revenue. Let's go through three concrete cases.

How the calculation works

Taxable profit is accounting profit before tax, adjusted under Federal Tax Authority rules. The general formula:

Taxable profit up to AED 375,000 → 0%
Taxable profit above AED 375,000 → 9% (only on the excess)

It's not a complicated marginal scale — it's literally two brackets.

Scenario 1: Solo consultant, Free Zone, clients only outside the UAE

Pedro is a software consultant, registered in IFZA Free Zone, has one client in the US and two in Europe. Annual revenue: AED 600,000. Operating expenses (virtual office, licence, travel, software): AED 120,000.

• Revenue: AED 600,000
• Expenses: AED 120,000
• Taxable profit: AED 480,000
• Qualifying income (all outside the UAE): 100%
• Pedro meets the QFZP regime → Corporate Tax: 0%

Pedro pays zero Corporate Tax. He distributes AED 480,000 as a dividend. As a UAE tax resident, he pays 0% personal tax on that dividend.

Scenario 2: Scaled e-commerce, Free Zone, sells globally

Marta has an online cosmetics store, registered in RAKEZ. Sells to the US, UK, Spain, and 5% of sales go to UAE residents via her platform. Annual revenue: AED 2,500,000. Margin: 40%. Taxable profit: AED 1,000,000.

Non-qualifying revenue (UAE sales): AED 125,000. That's less than AED 5M AND less than 5% of total revenue — Marta passes the de minimis test and keeps the QFZP regime.

• Taxable profit: AED 1,000,000
• Qualifying revenue (95% of total): meets QFZP
• Corporate Tax: 0%

If Marta grew and the UAE slice passed 5% (say, 8%), the QFZP regime would be lost for the entire year and all profit above AED 375,000 would go to 9%. A loss of over AED 56,000/year by overshooting the limit by a little — that is why planning matters.

Scenario 3: B2B services to the Emirati market, Mainland

João has a Mainland company providing marketing services to Dubai companies. Annual revenue: AED 1,200,000. Taxable profit: AED 540,000.

Not Free Zone, so no QFZP regime. The general rule applies:

• First AED 375,000 → 0% → AED 0 in tax
• Excess (AED 165,000) → 9% → AED 14,850 in tax

João pays AED 14,850 in Corporate Tax — an effective rate of 2.75% on total profit. Compared with any other mature financial centre, it remains very competitive.

The tricks that do NOT work

Common temptations that the Federal Tax Authority detects easily:

• Fragmenting the company into two Free Zones to double the de minimis ceiling — related-party transactions have transfer pricing, and the FTA consolidates the test.
• Paying inflated "salaries" to the shareholder to reduce profit — salary does not accumulate the limit, but it is taxable on personal income in the country of residence.
• Under-invoicing to an offshore — UAE anti-elision rules in line with OECD BEPS Action 13.

Legitimate planning is in the structure, not the trick. Free Zone holding + Mainland branch, clear separation of qualifying income, correct management of the de minimis test — those are the moves that work.