Understanding the UAE Tax Landscape

For many years, the UAE offered a nearly tax-free business environment. Today, with the implementation of both corporate income tax and Value Added Tax, the landscape has changed. To operate effectively under the UAE tax system 2025, businesses must clearly understand the difference between corporate tax and VAT, as each tax applies to different aspects of your financial activity.

What Is VAT in the UAE?

VAT (Value Added Tax) is a consumption-based tax applied to the sale of goods and services. It’s charged at each stage of the supply chain and is ultimately paid by the end consumer. In the UAE, the standard VAT rate remains 5%, and businesses must register for VAT if their taxable turnover exceeds AED 375,000 annually. VAT compliance in UAE requires proper invoicing, record-keeping, and regular filing with the Federal Tax Authority.

What Is Corporate Tax in the UAE?

Corporate tax, on the other hand, is a direct tax on the net profits of businesses. Introduced in 2023 and fully enforced in 2025, corporate tax in UAE is set at 9% for companies earning more than AED 375,000 in annual profit. This tax is not passed on to the consumer like VAT but paid by the business entity itself. It applies to both mainland and Free Zone companies unless specific exemptions apply.

How Do These Taxes Differ?

The key distinction between corporate tax vs VAT in UAE lies in who bears the tax burden and what is being taxed. VAT is calculated on revenue and charged to customers, while corporate tax is calculated on net profit and paid by the business. VAT affects your pricing and invoicing, while corporate tax impacts your profit margins, financial reporting, and business planning.

Why Businesses Must Manage Both

While the taxes are separate, they’re not unrelated. Businesses must account for both in their financial systems and ensure compliance in parallel. Errors in VAT filings can trigger audits that also examine income and profitability, while mistakes in corporate filings can undermine your tax strategy and expose the company to fines.

Common Misconceptions to Avoid

Some businesses mistakenly assume that if they’re paying one tax, they’re exempt from the other. That’s not the case. Most companies operating in the UAE must manage both VAT and corporate tax obligations. The difference between VAT and corporate tax in UAE isn’t about choice—it’s about application. Each must be understood and handled through different systems, processes, and filing timelines.

How 28Group Ensures Dual Compliance

At 28Group, we provide integrated advisory services covering both VAT and income tax in UAE. Our consultants help businesses design accounting systems that clearly separate revenue and profit tax obligations. We ensure that your filings are aligned with the latest FTA guidance and that your operations are fully compliant with both tax streams in 2025.