Myths About Setting Up a Business in the UAE

Myth 1. There is no tax in the UAE

The most persistent one, and the most expensive.

Corporate Tax applies to tax periods starting on or after 1 June 2023. Taxable income up to AED 375,000 is taxed at 0% and the excess at 9%, under Article 3(1) of the Corporate Tax Law.

VAT has applied since 2018 at 5%, with mandatory registration at AED 375,000 of taxable supplies.

The UAE remains a low tax jurisdiction. It is not a no tax jurisdiction, and planning a business on the older assumption produces an unpleasant surprise in year one.

Myth 2. Free zone companies pay no tax

A Qualifying Free Zone Person pays 0% on qualifying income and 9% on income that is not qualifying.

Being in a free zone does not make you a Qualifying Free Zone Person. That status has conditions, and income has to actually qualify.

A Qualifying Free Zone Person also does not get the AED 375,000 band at 0%, and cannot use Small Business Relief, tax grouping or several other reliefs.

Free zone status is a choice with trade-offs, not an exemption.

Myth 3. A small company does not need to register

Corporate Tax registration deadlines came from FTA Decision No. 3 of 2024, keyed to the month your trade licence was issued. Not to your revenue.

Small Business Relief may reduce your tax to nil. You still register, you still file, and you must elect for the relief in the return to get it.

Nil tax does not mean nil obligations.

Myth 4. You need a local partner for everything

Onshore ownership rules have changed substantially in recent years across many activities. The blanket 51% rule people still quote does not apply the way it once did.

Check the current position for your specific activity rather than working from older advice.

Myth 5. Free zone is always cheaper than mainland

It depends on what you do.

Free zones can restrict where you can trade. If your customers are onshore UAE businesses, a free zone licence may create friction that costs more than the licence saved.

Choose on where your customers are, not on the setup cost.

Myth 6. You can run it from abroad with no substance

Substance requirements exist, and tax residence is not decided by where a certificate was issued.

If nothing happens in the UAE, that is visible.

Myth 7. Bookkeeping can wait until year one is over

Your Corporate Tax computation starts from accounting income under IFRS.

A business that keeps no proper records in year one spends year two reconstructing them under deadline pressure, and pays for that twice.

Myth 8. The licence is the hard part

The licence is the easy part. It is administrative and someone will do it for you.

What is harder, and what people underestimate, is the ongoing obligations. Two tax registrations, returns, records, possibly an audit for licence renewal, and deregistration if you close.

What this does not cover

Ownership rules, visa allocations and activity restrictions vary by emirate, free zone and activity, and they change. Verify the current position for your specific case.

This is general information on published law, not advice on your position.

Where we fit

We handle registrations, bookkeeping, tax and audit for UAE companies from setup onwards. Tell us what you plan to do and where your customers are.