UAE tax
VAT vs corporate tax in the UAE: what's the difference?
Two taxes, two different questions. A plain-language guide to what each tax is charged on, how it's reported and why most businesses need to think about both.
Last reviewed: · 4 min read
This article is general information, reviewed on the date shown. It is not tax, legal or financial advice. Rules change; confirm current requirements with the Federal Tax Authority or speak to Lexor about your circumstances.
Business owners in the UAE often hear “tax” and think of one obligation. In practice, most businesses deal with two very different taxes: value added tax (VAT) and corporate tax. Understanding the difference helps you keep the right records and avoid missed deadlines.
VAT is a tax on transactions
VAT is charged on most supplies of goods and services. A VAT-registered business adds VAT to its sales (output tax), pays VAT on its purchases (input tax), and reports the difference to the Federal Tax Authority in periodic returns — usually quarterly. The standard rate is 5%.
- Charged on sales, not on profit
- Reported in periodic returns, typically quarterly
- Registration depends on the value of taxable supplies and imports
- Requires compliant tax invoices and records
Corporate tax is a tax on profit
Corporate tax is charged on a business's taxable income for its financial year. Taxable income starts from the accounting profit in your financial statements and is then adjusted for tax rules. The rate is 0% on taxable income up to AED 375,000 and 9% above that.
- Charged on annual taxable profit
- Reported in one annual return, generally due within nine months of the year end
- Registration is required for taxable persons even if no tax is payable
- Relies on accurate financial statements
Why the difference matters
A business can make a loss and still owe VAT, because VAT follows transactions rather than profit. Equally, a business below the VAT registration threshold may still need to register for corporate tax. The two taxes have different registrations, deadlines and records, so it pays to manage them together.
What to do next
Check whether you are registered for each tax, note your filing calendar, and make sure your bookkeeping supports both. If you're unsure where you stand, Lexor can review your position.
Official sources