A Global Tax Haven Under Transformation

For decades, the UAE has been known as a tax haven — a place with zero income tax and no corporate taxes for most businesses. This reputation helped the country attract global talent, multinational companies, and high-net-worth individuals. But as of 2023, the tax landscape is shifting. If you're wondering why the UAE is tax-free, and why that’s starting to change, this article will give you the full picture — past, present, and future.

A Tax-Free Oasis: The UAE Before 2023

Historically, the UAE had:

  • 0% personal income tax
  • 0% corporate tax (except for oil companies and foreign banks)
  • 0% withholding tax
  • 5% VAT (introduced in 2018)
  • No capital gains or inheritance tax

💡 This made the UAE one of the most attractive jurisdictions globally for business owners, entrepreneurs, and expats.

So Why Was UAE Tax-Free?

There are three key reasons:

1. Oil Revenue Replaced Taxation

The UAE historically relied on oil and gas revenues to fund public services instead of taxing its residents or businesses.

2. Attracting Global Investment

With no tax burden, the UAE positioned itself as a:

  • Global business hub
  • Destination for foreign direct investment
  • Regional base for multinational corporations

3. Strategic Global Competition

The UAE competed with Hong Kong, Singapore, and offshore jurisdictions by offering a tax-free environment to attract:

  • Tech startups
  • Holding companies
  • Private wealth

Why That’s Changing: Corporate Tax in 2025

As of June 1, 2023, the UAE implemented a federal corporate tax:

Profit ThresholdTax Rate
≤ AED 375,0000%
> AED 375,000 (net)9%

Key reasons for this change:

✅ 1. Compliance with OECD Global Minimum Tax (BEPS)

  • The UAE joined the OECD Inclusive Framework and committed to:
    • Global tax transparency
    • Avoiding base erosion and profit shifting (BEPS)
    • Implementing the 15% global minimum tax for large multinationals

✅ 2. Diversification of Revenue

  • UAE is shifting from oil to a knowledge-based, diversified economy
  • Corporate tax provides stable government income for infrastructure, innovation, and sustainability

✅ 3. Global Credibility & Trade Access

  • Adopting corporate tax enhances the UAE’s international credibility
  • Helps avoid being blacklisted as a non-cooperative jurisdiction

What’s Still Tax-Free in the UAE?

Despite the introduction of corporate tax, the UAE remains extremely tax-friendly:

✅ Still 0% on:

  • Personal income (salaries, freelance income)
  • Dividends, capital gains (for individuals)
  • Inheritance
  • Investment gains (non-business)
  • Real estate sales (with some exceptions)

✅ Free Zones can still benefit from 0% corporate tax, if:

  • They qualify as a Qualifying Free Zone Person (QFZP)
  • They meet substance, accounting, and income source rules

What This Means for Businesses in 2025

If you’re a business owner in the UAE:

  • You must register for corporate tax (even if 0% applies)
  • You may still qualify for tax exemptions depending on your zone, structure, and income source
  • You need to keep audited financial records and file returns

🧠 This is where tax advisory experts like Affinitas come in — to help you stay compliant and legally optimize your structure.

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❓FAQs

Q: Is UAE still tax-free in 2025?
A: Personal income is still 100% tax-free. However, businesses with profits over AED 375,000 are subject to a 9% corporate tax.

Q: Why did the UAE introduce corporate tax?
A: To align with global tax standards, diversify revenue, and avoid international blacklisting.

Q: Will my Free Zone company pay tax?
A: Not necessarily. If you meet the criteria for a Qualifying Free Zone Person, you can still enjoy 0% corporate tax.