The UAE’s corporate tax law applies to trading companies, except those qualifying for exemptions or operating as natural persons with yearly incomes below one million dirhams. These firms can be divided into resident and nonresident trading companies.
Resident trading companies encompass juridical trading companies incorporated in the UAE, those controlled and managed from the UAE but established outside, sole establishments, and civil companies conducting trading activities in the UAE.
Nonresident trading companies include the permanent establishment (PE) of nonresident trading companies in the UAE, nonresident trading companies’ UAE-sourced income, and the nexus of nonresident trading companies to generate UAE-sourced income.
Limited liability trading companies, public shareholding trading companies, sole establishments, civil companies, etc., engaged in trading fall under the definition of taxable trading companies.
Resident juridical trading companies are subject to corporate tax (CT) on worldwide taxable income. Sole establishments, civil companies, or individuals with freelance businesses pay CT only on worldwide income related to their UAE business.
Sole establishments, civil companies, or individuals engaged in trading, irrespective of their free zone status, are treated the same in terms of taxability.
Exceptions exist: those earning up to one million dirhams are exempt from corporate tax, and until the end of 2026, those with incomes up to three million dirhams are exempt.
For taxable income of Dh375,000 or less, a 0% corporate tax applies; beyond this, income is taxed at nine percent.
Corporate tax application on juridical trading companies depends on their location and customer status. Free zone juridical trading companies can qualify as “Qualifying Free Zone Trading Companies (QFZTC),” enjoying special provisions if they sell goods to another free zone person.
Transactions with non-free zone persons result in QI if the goods are sold to wholesalers or retailers. Non-QFZTCs in the UAE mainland are not eligible for exemptions, liable for taxes on global income if considered resident entities.
Customer status doesn’t impact income classification. Companies dealing with wholesalers or retailers in the UAE mainland should strategically position themselves for zero percent CT on QI benefits.