As the UAE strengthens its financial framework, understanding taxation is now more important than ever for businesses. Two major taxes currently applicable in the UAE are Corporate Tax and Value-Added Tax (VAT). While both are government levies, they differ in purpose, calculation, and compliance. In this blog, we’ll explore how corporate tax is different from VAT in UAE and how businesses can stay compliant with both tax systems.
What is Corporate Tax in UAE?
Corporate Tax is a direct tax imposed on the net profits of businesses operating in the UAE. It was introduced by the UAE government and applies to financial years starting on or after June 1, 2023. Businesses earning a taxable income above AED 375,000 are subject to a 9% corporate tax rate.
Key points about Corporate Tax:
- It is levied on the net profit of businesses.
- Tax rate: 0% for income up to AED 375,000 and 9% beyond.
- Annual corporate tax return filing is mandatory.
- Free zone companies may be eligible for exemptions under qualifying conditions.
What is Value-Added Tax (VAT) in UAE?
Value-Added Tax (VAT) is an indirect tax applied at a standard rate of 5% on the sale of most goods and services in the UAE. Implemented on January 1, 2018, VAT is collected at each stage of the supply chain and ultimately borne by the end consumer.
Key points about VAT:
- It is charged on most goods and services.
- The standard VAT rate is 5%.
- Businesses with annual turnover above AED 375,000 must register for VAT.
- Quarterly VAT return filings are required.
- Registered businesses can claim input VAT on eligible expenses.
How is Corporate Tax Different From VAT in UAE?
Below is a table outlining the key differences between Corporate Tax and VAT:
| Aspect | Corporate Tax | Value-Added Tax (VAT) |
| Type of Tax | Direct tax on business profits | Indirect tax on goods and services |
| Who Pays It | Businesses earning taxable income | End consumers (collected by businesses) |
| Tax Rate | 0% up to AED 375,000, 9% above | 5% standard rate |
| Registration Threshold | AED 375,000 taxable profit | AED 375,000 taxable turnover |
| Filing Frequency | Annually | Quarterly (or as directed by FTA) |
| Deductible Input | Not applicable | Input VAT can be reclaimed |
Why Does It Matter for Your Business?
Both taxes have different implications. Corporate Tax affects your net profits and annual accounting, while VAT impacts your pricing, invoicing, and day-to-day sales. Understanding how corporate tax is different from VAT in UAE helps ensure your business meets legal obligations, avoids penalties, and maintains financial health.
How Al Tawakkal Can Help
At Al Tawakkal, we provide complete tax consultancy services to ensure your business is compliant with UAE tax laws. Our services include:
- Corporate Tax registration and annual return filing
- VAT registration, filing, and reclaim guidance
- Bookkeeping and accounting support
- Consultation for free zone and mainland companies
- Representation during FTA audits and reviews
Final Thoughts
Now that you understand how corporate tax is different from VAT in UAE, it’s time to take action. Whether you’re a small business owner, startup, or a large enterprise, Al Tawakkal is here to simplify your tax journey with expert support and reliable service.
