Abu Dhabi Tax Guide

Overview

Abu Dhabi’s tax framework has undergone fundamental transformation since the publication of Economic Vision 2030 in 2008. At that time, the UAE levied no corporate tax (outside the oil sector and foreign bank branches), no value-added tax, and no personal income tax. The emirate’s revenue model depended almost entirely on hydrocarbon income.

The introduction of VAT in January 2018 and federal corporate tax in June 2023 represents the most significant fiscal reform in the UAE’s history. These taxes apply at the federal level across all seven emirates, including Abu Dhabi. They address Pillar 5’s Objective 13 (diversified government revenue) directly, creating sustainable non-oil revenue streams that reduce fiscal dependence on oil prices.

Despite these reforms, the UAE — and Abu Dhabi specifically — maintains one of the most competitive tax environments globally. There is no personal income tax, no property tax, no capital gains tax, no withholding tax, and the corporate tax rate of 9 percent is among the lowest in the world.

Corporate Tax

Federal Corporate Tax Law

The UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) introduced a federal corporate tax effective for financial years beginning on or after 1 June 2023.

Rate Structure:

Scope: The corporate tax applies to:

• All businesses operating in the UAE (mainland and free zones)
• Branches of foreign companies
• Natural persons conducting business activities exceeding AED 1 million in annual revenue
• Foreign entities with a permanent establishment in the UAE

Exempt Entities:

• Government entities and government-controlled entities engaged in mandated activities
• Extractive businesses (oil and gas companies subject to existing emirate-level fiscal arrangements)
• Qualifying public benefit entities
• Qualifying investment funds
• Public and regulated private pension and social security funds

Free Zone Qualifying Income: Free zone entities — including those registered in ADGM, KIZAD, Masdar City Free Zone, and twofour54 — may benefit from a 0 percent corporate tax rate on qualifying income, provided they meet the following conditions:

• Maintain adequate substance in the free zone (employees, assets, core activities)
• Derive qualifying income (income from transactions with other free zone entities, or income from certain qualifying activities)
• Comply with transfer pricing documentation requirements
• Elect to be treated as a qualifying free zone person

Non-qualifying income earned by free zone entities (e.g., income from transactions with mainland entities that is not qualifying) is subject to the standard 9 percent rate.

Transfer Pricing

The corporate tax law includes comprehensive transfer pricing provisions aligned with OECD Transfer Pricing Guidelines:

• Transactions between related parties must be conducted at arm’s length
• Transfer pricing documentation (master file and local file) is required for businesses meeting revenue thresholds
• Country-by-country reporting for large multinational groups
• Advanced pricing agreements available

Tax Groups

Related UAE entities may form a tax group, filing a single consolidated tax return. Intra-group transactions are eliminated for tax purposes. Group formation requires common ownership (at least 95 percent) and certain other conditions.

Value Added Tax (VAT)

The UAE introduced VAT at 5 percent on 1 January 2018, implementing the GCC Unified VAT Agreement. The Federal Tax Authority (FTA) administers VAT.

Registration Threshold:

• Mandatory registration: taxable supplies and imports exceed AED 375,000 in the trailing 12-month period
• Voluntary registration: taxable supplies and imports exceed AED 187,500

Standard Rate: 5 percent on most goods and services.

Zero-Rated Supplies (0%):

• Exports of goods and services outside the UAE
• International transportation
• Supplies of certain precious metals (first supply)
• Newly constructed residential properties (first supply)
• Certain education and healthcare services

Exempt Supplies (no VAT, no input tax recovery):

• Certain financial services (interest on loans, life insurance premiums)
• Residential property rentals
• Bare land
• Local passenger transport

VAT Returns: Filed quarterly (monthly for large businesses). Electronic filing through the FTA portal.

Excise Tax

The UAE introduced excise tax in October 2017, targeting specific goods deemed harmful to public health or the environment:

Taxes That Do Not Exist

The competitive core of Abu Dhabi’s tax framework lies in the taxes it does not levy:

• Personal income tax: 0 percent. No tax on salaries, wages, or personal income of any kind. This applies to all residents regardless of nationality.
• Property tax: 0 percent. No annual tax on real estate. A one-time registration fee (typically 2 percent) applies on property transfer, but there is no recurring property tax.
• Capital gains tax: 0 percent. No separate capital gains tax. Capital gains on share disposals may be exempt under the corporate tax law if qualifying participation exemption conditions are met.
• Withholding tax: 0 percent. No withholding tax on dividends, interest, royalties, or service fees paid to non-residents.
• Inheritance tax / Estate tax: 0 percent. No inheritance or estate tax. Property transfer on death is governed by applicable personal status law (Sharia for Muslims, or registered will provisions for non-Muslims through ADGM or DIFC wills services).
• Customs duty: Generally 5 percent on imports (GCC common external tariff). Many goods imported into free zones are exempt. Re-exports are typically duty-free.

Double Taxation Agreements

The UAE has concluded double taxation agreements (DTAs) with over 100 countries. These agreements typically provide:

• Reduced withholding tax rates on cross-border payments (particularly relevant for countries that levy withholding tax)
• Elimination of double taxation on income
• Exchange of information provisions
• Mutual agreement procedures for dispute resolution

Key DTA partners include: India, China, the United Kingdom, France, Germany, Singapore, Japan, South Korea, and most European and Asian economies.

Abu Dhabi-based entities (mainland and free zone) can access the UAE DTA network, subject to substance requirements and beneficial ownership conditions.

International Comparison

Abu Dhabi’s combination of low corporate tax, zero personal income tax, zero property tax, and zero capital gains tax creates one of the most tax-efficient jurisdictions globally for both corporate operations and individual wealth accumulation.

Practical Implications

For Businesses:

• Corporate tax compliance is now mandatory. Businesses must register with the Federal Tax Authority, maintain proper books and records, and file annual tax returns.
• Free zone entities must carefully assess whether their income qualifies for the 0 percent rate. The qualifying conditions are specific, and non-qualifying income reverts to the 9 percent rate.
• Transfer pricing documentation requirements add compliance cost for groups with related-party transactions.
• VAT registration, collection, and filing are operational requirements for most businesses above the threshold.

For Individuals:

• No personal income tax means gross salary equals net salary (subject to social security contributions for GCC nationals only).
• Investment income, rental income, and capital gains are not taxed at the individual level.
• The absence of property tax reduces the holding cost of real estate investment.
• Expatriates should consider their home country tax obligations, as many countries tax their citizens or residents on worldwide income regardless of where it is earned.

Assessment

Abu Dhabi’s tax framework has evolved from a zero-tax environment to a low-tax environment. The introduction of corporate tax and VAT addresses the structural revenue diversification imperative identified in the Economic Vision 2030 while maintaining rates that are globally competitive. The free zone qualifying income provisions ensure that Abu Dhabi’s international financial centre (ADGM) and industrial zones remain attractive to foreign investors. The absence of personal income tax, property tax, capital gains tax, and withholding tax preserves the emirate’s fundamental tax competitiveness for both business operations and personal wealth management.