In June 2023, the UAE introduced a 9% federal corporate tax on firm income exceeding AED 375,000 (approximately USD 100,000). This was a major change for the oil-rich nation, which had long used a tax-free economy to attract investors and talent.
In mid-2025, over two years later, this fiscal change is affecting the UAE’s economy, business climate, and social contract, drawing comparisons with regional peers and global low-tax regimes.
From Tax-Free Haven To Global Standards
The UAE’s lack of federal taxes (except on oil firms and foreign banks) made it a magnet for trade, tourism, and investment for decades. That changed with a 5% VAT in 2018, and the 2023 corporate tax further undermined tax-free status. Officials justified the company tax as a way to meet international standards and diversify earnings.
The tax was modest and featured substantial exclusions, such as a 0% rate on qualifying revenue for enterprises in the UAE’s wide free zone network to keep the country “attractive” for investment. The regime in free zones. When the strategy began, Ministry of Finance Executive Director Shabana Begum stated that the goal was to maintain the UAE’s attractiveness.
This means the UAE has walked a fine line: introducing taxation to meet global norms (such as the OECD’s anti-avoidance efforts) while maintaining a tax advantage through free-zone perks and a 9% rate that is the lowest in the GCC, except for Bahrain (which has no general corporate tax).
Fiscal Impact And Economic Performance
The UAE’s economy has grown strongly two years after the new tax, demonstrating it has not hurt economic performance. The IMF and World Bank anticipate real GDP to rise by 3.7% in 2024 and 4% in 2025. Tourism, finance, and IT account for most GDP.
Strong oil prices and post-pandemic momentum have helped, but broad-based growth shows confidence that the 9% tax is feasible. The UAE ranked second internationally in FDI inflows with \$30.6 billion in 2023, up 34% from 2022.
This increase in investment in the first year of the new tax suggests that investors remain optimistic about the UAE’s prospects due to its political stability and business-friendly policies, which outweigh tax concerns.
Corporate tax boosts government finances. After implementation, the corporate levy might generate 1.5%–1.8% of GDP in additional revenue by 2025, according to S&P Global Ratings. That boosts public funds and supports budgets in all seven emirates.
“The tax will help diversify the UAE government’s revenue away from the oil sector,” said S\&P analyst Trevor Cullinan, adding that revenue allocation amongst emirates is unknown. The implementation of the company tax is leading to a rise in non-oil revenues, and projections indicate that the UAE’s budget surplus will persist.
According to the International Monetary Fund (IMF), corporate tax benefits would be gradual; thus, tax administration and compliance should be improved to maximise gains. Even a slow increase in tax revenue allows the UAE to invest in infrastructure and social development, ensuring long-term viability.
Small-Business Compliance And Adaptation
In a country new to taxes, compliance issues were inevitable, but the UAE’s government and businesses had been preparing for two years. The Federal Tax Authority imposed phased deadlines for company tax registration (all current enterprises must register by March 2025) and provided substantial filing guidelines.
By mid-2025, thousands of LLCs and multinationals had registered and were preparing their initial 2025 returns. Accounting and tax advice services are in high demand; thus, corporations are strengthening their finance departments to meet the increased demands. The UAE government has provided “small business relief” to entrepreneurs and SMEs during this transition. SME profits below AED 375,000 are tax-free (0%), and many are exempt from corporate tax. Startups and mom-and-pop firms benefit from this USD 100K profit cap, ensuring the tax targets higher profits.
A temporary relief scheme waives tax filings for small enterprises under AED 3 million until 2026, easing the burden on these firms. These laws have exempted most local small enterprises from tax bills, but they are encouraged to keep correct accounts and register.
Compliance is now a cost of doing business in the UAE for larger enterprises, but it is handled. Transfer pricing documentation, audited financial statements, and other international standards are now business mandates. Tax experts say early compliance rates are high since many UAE enterprises were already used to completing VAT returns and following economic substance regulations.
Tax administration has been simplified by the government’s investment in internet portals and e-guides. The IMF stressed the importance of tax enforcement and collection capacity building. Early enforcement, like late registration fees, shows authorities are serious about compliance. This could strengthen financial transparency in the UAE’s corporate sector, improving corporate governance and creditworthiness.
Comparing UAE To GCC Neighbours And Global Havens
How the UAE’s new tax compares to other Gulf states and tax havens is crucial. UAE appears to have maintained its regional edge. Its 9% corporation tax rate is the lowest in the GCC, save for Bahrain. Saudi Arabia charges 20% corporation tax, Kuwait 15% (international enterprises), Qatar 10%, and Oman 15%.
Most Gulf governments tax just foreign enterprises or select industries, whereas the UAE has a comprehensive policy with free-zone 0% principles. A 9% headline rate with substantial carve-outs makes the UAE more investor-friendly than Saudi Arabia or Oman.
This strategy appears to be working: the UAE leads Middle Eastern FDI. The UAE’s moderate taxation and pro-business atmosphere have kept it the region’s economic hub despite competition from Saudi Arabia’s Vision 2030 investment plan.
Global comparisons are telling too. Low-tax jurisdictions globally are adapting to new regulations, including the UAE. Singapore, a benchmark, has a 17% corporate tax but offers several advantages. By 2025, it will impose a 15% minimum tax on large multinationals in line with OECD agreements. The Cayman Islands and other tax havens enjoy zero corporate tax, but they lack the UAE’s scale and infrastructure for business. Importantly, international tax measures like the OECD’s 15% global minimum tax are weakening zero-tax havens: huge corporations that evade tax in one country may pay a top-up tax elsewhere.
To keep those tax dollars, the UAE introduced its 15% domestic top-up for big multinationals in 2025. Since both Cayman and the UAE have a 15% minimum, a multinational has no financial incentive to choose one over the other, while the UAE has better connections, labour, and legal stability.
The UAE is becoming a diversified business hub by adopting a low-but-not-zero tax policy. It competes on quality of life, world-class infrastructure, political stability, and attractive taxes.
A Dubai free-zone consultancy firm said the UAE is a prominent holding company jurisdiction due to its “0% corporate tax in free zones, robust financial infrastructure, and highly business-friendly environment.” That blend makes the UAE competitive despite tightening global restrictions.
Outlook
The initial tax payments and evolving worldwide tax legislation will be the ultimate test. The government must maintain equitable tax income distribution among emirates and continue refining the system (e.g., transfer pricing and free-zone qualifications) to avoid loopholes and conflicts.
If the past two years provide any indication, the UAE will likely face these difficulties pragmatically. Businesses and officials seem to want to keep the nation appealing. Once hesitant, investors now see the corporation tax as the “new normal” in the UAE, as VAT did after 2018. Small businesses have been protected, allowing entrepreneurship to thrive. The idea that a flourishing economy might benefit the state is gaining societal acceptance.
International observers unfamiliar with Gulf tax policy will find the UAE’s experience fascinating: a young nation balancing competitiveness with budgetary discipline, using a light-touch tax to safeguard its future.
The UAE’s capacity to maintain high growth and investment while extending its tax base will be widely studied in the coming years. The evidence from mid-2025 suggests a UAE that is open for business, perhaps less tax-free but maybe stronger.