VAT and Corporate Tax are the two main taxes a UAE business needs to think about, and they're easy to conflate since both involve the Federal Tax Authority — but they tax completely different things, with separate registration requirements, rates and filing obligations.
Side-by-Side Comparison
Here's the direct comparison:
- What's taxed: VAT taxes the value added to goods and services at each stage of supply — it's a consumption tax ultimately borne by the end customer. Corporate Tax taxes your business's net profit.
- Rate: VAT is a flat 5% on applicable supplies. Corporate Tax is 9%, but only on taxable profit above the AED 375,000 tax-free threshold.
- Who collects it: VAT is collected from customers on sales and remitted to the FTA, with input VAT on business costs generally reclaimable. Corporate Tax is calculated on your own net profit and paid directly by the business.
- Registration threshold: VAT registration becomes mandatory once taxable turnover crosses a specific threshold. Corporate Tax generally applies more broadly, though many businesses pay 0% due to the profit threshold, Small Business Relief, or free zone qualifying income rules.
- Filing frequency: VAT returns are typically filed periodically (commonly quarterly, depending on your registration). Corporate Tax is filed annually based on your financial year.
Can You Owe Both at Once?
Yes — VAT and Corporate Tax are independent obligations, and many UAE businesses are registered for and pay both simultaneously once they cross the relevant thresholds. Being VAT-registered doesn't exempt you from Corporate Tax, and vice versa — each has to be assessed and filed separately based on its own specific rules.
Run Your Own Numbers
General comparisons only go so far — the right answer for you depends on your specific numbers. The Tax Assistant tool lets you check your own situation directly, free and in under a minute.
Frequently Asked Questions
If I'm below the VAT threshold, am I also exempt from Corporate Tax?
Not automatically — they have separate thresholds and rules, so it's worth checking your Corporate Tax position independently rather than assuming one exemption covers both.
Do free zone companies pay both VAT and Corporate Tax?
It depends on the specific business and transaction — free zone companies can have VAT obligations on certain supplies while separately maintaining 0% Corporate Tax on qualifying income, subject to meeting the relevant conditions for each.
Which tax applies to a freelancer's invoice?
VAT may apply if the freelancer is VAT-registered and the supply is taxable; Corporate Tax applies to the freelancer's overall business profit at year-end, assessed separately from any individual invoice.
Is Corporate Tax new compared to VAT?
Yes — VAT was introduced in 2018, while Corporate Tax came into effect more recently, which is part of why business owners are often more familiar with VAT rules.
Do I need separate registrations for VAT and Corporate Tax?
Yes — they're administered as separate registrations with the Federal Tax Authority, each with its own process and requirements.