Under UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), a UAE-resident juridical person that is not a Qualifying Free Zone Person and has not elected Small Business Relief reports taxable income of AED 500,000 for a tax period. What is its Corporate Tax liability for that tax period?
- AED 45,000, applying the 9% rate to the full AED 500,000
- AED 11,250, applying 0% to the first AED 375,000 and 9% to the remaining AED 125,000
- AED 25,000, applying a flat 5% rate to the full AED 500,000
- AED 0, because taxable income below AED 1,000,000 is fully exempt
Why B? And why not the others?
Correct answer: B. AED 11,250, applying 0% to the first AED 375,000 and 9% to the remaining AED 125,000
Article 3 of Federal Decree-Law No. 47 of 2022 sets a two-tier Corporate Tax rate: 0% on taxable income up to AED 375,000, and 9% on taxable income above that threshold. On AED 500,000, the first AED 375,000 is taxed at 0% and only the remaining AED 125,000 is taxed at 9%, giving AED 11,250. Option A wrongly applies the 9% rate to the entire amount, ignoring that the 0% band is a genuine bracket in the rate schedule, not a conditional exemption. Option C invents a 5% Corporate Tax rate by confusing it with the unrelated 5% VAT rate, which taxes supplies rather than income. Option D confuses this scenario with the separate AED 1,000,000 turnover threshold that determines whether a natural person's business activity is in scope of Corporate Tax at all; it has no bearing on a juridical person's tax liability once already a taxable person.
Source: UAE Federal Decree-Law No. 47 of 2022, Article 3 (Corporate Tax rate)