VAT & Taxation in Dubai: Essential Guide for Foreign Businesses

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Dubai’s business appeal is obvious—zero personal income tax, a prime global location, and world-class infrastructure. But beneath that golden surface lies a critical layer every foreign business must master: taxation in Dubai.

In recent years, the UAE has undergone one of the most significant shifts in its fiscal policy. From the introduction of VAT in 2018 to the rollout of corporate tax in 2023, what was once a no-tax territory is now a jurisdiction demanding smart compliance.

For the more than 337,000 registered companies in Dubai in 2024, taxation is no longer a box-ticking exercise—it’s a make-or-break detail in business strategy.

This guide breaks down what you need to know about VAT and corporate tax in Dubai, how they impact foreign companies, and what you can do to stay compliant—and competitive—in 2025.

VAT in Dubai: A 5% Rule with Big Implications

The introduction of Value Added Tax (VAT) in 2018 marked a turning point in the UAE’s financial evolution. Set at a flat 5%, VAT applies to most goods and services in the region and is now a standard part of business operations.

For foreign businesses, VAT is both a compliance necessity and an operational consideration.

Who Needs to Register?

Businesses—foreign or local—must register for VAT if their taxable turnover exceeds AED 375,000 annually. Voluntary registration is possible from AED 187,500, which can be a smart move for early-stage firms planning for growth.

How Does It Work?

Once registered, a company must:

• Charge 5% VAT on taxable sales
• Reclaim VAT paid on eligible business expenses
• File VAT returns quarterly or annually with the UAE Federal Tax Authority (FTA)

Certain sectors like healthcare, education, financial services, and residential real estate rentals are either zero-rated or exempt, adding layers of nuance for companies operating in or adjacent to these industries.

Imports & Exports

• Imports are typically taxed at the point of entry, unless deferred payment schemes are in place.
• Exports, on the other hand, are zero-rated, meaning foreign buyers are not charged VAT—an essential benefit for globally focused companies.

Example: A digital marketing agency earns AED 600,000 in revenue. Its VAT liability on sales is AED 30,000. It can reclaim AED 10,000 from supplier invoices, leaving AED 20,000 as net VAT payable.

With over 500,000 companies registered for VAT in the UAE by 2024, the system is here to stay—and knowing how to navigate it is mission-critical.

Corporate Tax in Dubai: New Rules, Real Impact

For decades, Dubai’s tax-free narrative was largely true for corporations. That changed in June 2023, when the UAE introduced its first federal corporate tax, set at 9% on annual profits above AED 375,000.

This new regime fundamentally alters how foreign companies approach business planning, especially those with local clients, physical presence, or growing profit margins.

Who Pays?

Any company incorporated in the UAE—whether Mainland or Free Zone—that earns taxable profits over AED 375,000 is subject to corporate tax.

The Free Zone Question

A critical nuance is how Free Zone companies are treated. While they can still enjoy 0% corporate tax, this applies only if their income is generated within the Free Zone or internationally. The moment they do business with the Mainland UAE, that income is subject to the 9% tax rate.

Example: A Free Zone e-commerce business selling only to global clients may remain tax-exempt. But if it starts delivering to Dubai-based consumers or opens a physical storefront, it enters the taxable zone.

How Is Income Calculated?

Taxable income is calculated by deducting eligible expenses—such as salaries, rent, and cost of goods—from gross revenue. Deductions must be legitimate, documented, and aligned with UAE tax laws.

By 2024, more than 10,000 companies had registered for corporate tax, with many more expected to follow as the law matures.

Foreign Companies: Special Considerations and Challenges

If you’re a foreign entity setting up in Dubai, taxation brings both complexity and opportunity.

Double Taxation Agreements (DTAs)

The UAE has signed over 100 tax treaties, including with India, the UK, France, and Germany, ensuring foreign income isn’t taxed twice. These treaties can offer major relief for dividend payments, royalties, and service fees.

Transfer Pricing Rules

If your business operates across multiple jurisdictions or has transactions with related entities, UAE law requires all dealings to be at arm’s length. That means pricing must reflect fair market value, not internal discounts.

Violating this can trigger audits, fines, or worse—so this isn’t an area for shortcuts.

Record-Keeping Expectations

VAT and corporate tax both demand robust documentation, including:

• Sales invoices and receipts
• Input VAT calculations
• Contracts and MOUs
• Bank statements
• Payroll and expense logs

Auditable records are required for at least 5 years, and late or inaccurate filings can incur fines of up to 300% of the tax due.

Free Zone vs. Mainland: The Tax Showdown

Here’s a simplified comparison that foreign businesses often overlook:

Your choice depends on market access needs. Free Zones offer significant tax efficiency—until your business touches the local market. That’s where expert structuring becomes crucial.

Practical Tips for Staying Compliant

• Register for VAT early if you’re nearing the threshold—don’t wait until the FTA knocks.
• Segment your revenue streams if you operate both in and out of Free Zones.
• Consult your DTA if you’re repatriating profits to your home country.
• Implement bookkeeping tools or ERP systems to centralize VAT and CT reporting.
• Schedule quarterly tax health checks with professionals who know UAE law inside and out.

2025 Tax Trends: What Foreign Companies Must Watch

While the groundwork for VAT and corporate tax is now set, 2025 brings some key developments:

• Clarifications in corporate tax treatment for holding companies, IP-based businesses, and financial firms are expected.
• Digital filing requirements via the Federal Tax Authority’s e-services platform are becoming stricter—paper-based laggards beware.
• Green businesses and sustainability-linked incentives may receive special tax treatment under new government initiatives.

These shifts make one thing clear: tax strategy in Dubai can no longer be reactive—it must be proactive.

How CE Interm Helps You Master Taxation in Dubai

At CE Interm, we don’t just register businesses—we structure them for long-term success.

Our Dubai-based tax advisory team supports foreign companies with:

• VAT registration, setup, and filing
• Corporate tax planning and compliance
• Cross-border structuring and DTA navigation
• Transfer pricing documentation and reporting
• Interim CFO and tax leadership services

We combine deep market knowledge with hands-on execution. Whether you’re a startup or a multinational, our tax solutions are tailored to scale, simplify, and safeguard your business.

Conclusion: Taxes in Dubai Are Changing—Are You Ready?

Taxation in Dubai is no longer a back-office issue—it’s now central to every smart company’s growth plan.

With a 5% VAT on transactions and a 9% corporate tax on profits, the rules are clear—but how you navigate them will determine your success. Free Zone or Mainland, startup or scale-up, the choices you make today shape your audit readiness, cash flow, and credibility tomorrow.

📩 Need clarity on your Dubai tax strategy?

Contact CE Interm today and let’s build a tax-compliant, investor-ready structure that works for your business—not against it.