Tax guide for every UAE Founders. What you must know about VAT & Corporate Tax in 2025
By Kitaab on July 23, 2025
For years, the UAE was known as a tax-free sandbox, a place where entrepreneurs could build, scale, and exit without government deductions. But 2025 presents a different reality. With VAT now fully embedded and Corporate Tax (CT) entering its second year of enforcement, UAE businesses must evolve from tax-free thinking to tax-smart planning.
This UAE tax guide for business owners breaks down what you need to know and act on to stay compliant, avoid penalties, and position your company for growth in an increasingly transparent fiscal environment.
What's Kitaab?
Kitaab provides finance, accounting and tax services for freelancers, start-ups and businesses in the service sector
Learn moreWhat Is taxable income under UAE corporate tax?
UAE business tax obligations start with understanding taxable income. Taxable income is the portion of earnings a Taxable Person must report under UAE Corporate Tax. It forms the tax base, after applying exemptions, deductions, losses, and other adjustments. Correct calculation is crucial for compliance and strategic planning.
VAT in the UAE: Key rules and compliance tips for your business
VAT (Value Added Tax) has been active in the UAE since 2018, charged at a flat 5% on most goods and services. While that sounds simple, the compliance requirements can trip up startups and small businesses managing cash flow and invoicing.
In this UAE tax guide for business owners, we break down exactly what VAT means in practice so you can avoid missteps and stay ahead of the curve.
When should businesses register for VAT in the UAE?
Whether your business must register depends on your annual taxable turnover.
Mandatory registration: Annual taxable turnover exceeds AED 375,000
Voluntary registration: Turnover over AED 187,500 may register strategically to claim input VAT
Businesses are required to register, file returns, and deregister when necessary, even if winding down. Deregistration is not automatic and comes with its own deadlines.
What are the VAT deadlines, filing requirements, and penalties in the UAE?
Registration: Within 30 days of crossing the mandatory threshold
Filing: Quarterly (based on license date)
Penalties:
Late registration: AED 10,000
Late filing: AED 1,000 (first time), AED 2,000 (repeat)
Late payment: 2% monthly, escalating over time
Late Deregistration Penalty: AED 10,000 for not applying within 20 days of being ineligible.
Filing Errors: Penalties ranging from AED 3,000 to AED 5,000 for incorrect VAT returns.
Unpaid Liabilities: Accumulation of interest on unpaid VAT liabilities.
Whether you’re registering for the first time or closing your company, VAT remains a critical element of UAE tax compliance and a key part of a sustainable business strategy.
UAE corporate tax guide: what every business owner needs to know
Introduced in 2023, the UAE’s federal Corporate Tax (CT) is set at 9% on net profits exceeding AED 375,000/year. But here’s the key point: registration and filing are required even if your profits fall below the threshold. In a carefully crafted UAE tax guide for business owners, we intend to highlight that tax compliance is about transparency, not just payment.
Who Needs to File CT? So, who should register for corporate tax in the UAE? Almost every business, regardless of profit level, must register and file CT returns. includes resident businesses, non-resident entities with a Permanent Establishment, and Free Zone companies meeting qualifying conditions.
Are there penalties for not complying with corporate tax rules?
Yes, there are significant penalties for not complying with corporate tax rules.
Late Registration: AED 10,000 if you miss the 90-day window post-incorporation
Late Filing: AED 500/month, capped at AED 5,000
Late Filing After Closure: Penalties may still apply even after dissolution! If you are shutting down, you still have to register, file your final returns, and close your tax accounts to avoid post-closure liabilities.
Which businesses and entities are exempt from corporate tax in the UAE?
Entities exempt from corporate tax are those that the UAE government fully excludes from taxation. These include:
Government and government-controlled entities
Extractive industries
Certain qualifying investment funds
If you’re operating in a Free Zone, you may still qualify for 0% CT but only if you:
Perform “qualifying activities” as defined by the FTA
Meet economic substance requirements
Keep non-qualifying income within the de minimis threshold
Failing any of the above means losing the 0% benefit and becoming subject to the full 9% CT. Entities that fail any of the above conditions are not exempt and will be subject to the standard 9% Corporate Tax rate.
Why does understanding UAE tax rules matter for my business today?
Taxation in the UAE is now more than a formality; it's a test of business credibility. This UAE tax guide for business owners emphasizes that your compliance status impacts:
Access to Free Zone tax benefits
Eligibility for Golden Visa programs
M&A readiness and investor confidence
Your financial reputation
Future-proof your UAE taxation with Kitaab
At Kitaab, we specialize in helping startups, SMEs, and solo founders navigate UAE tax compliance without stress.
Corporate Tax planning, filing & QFZP qualification
Tax compliance for businesses closing down
Whether you're launching, growing, or winding down, this UAE tax guide for business owners is your starting point for smart, penalty-free operations. Speak to experts today Disclaimer: This blog is intended for general informational purposes only and does not constitute legal, tax, or accounting advice. While we strive to ensure accuracy, readers are encouraged to refer to the official update and consult with qualified advisors or the UAE Federal Tax Authority for guidance specific to your circumstances.