In 2025, businesses across the UAE are navigating two major tax systems: Value Added Tax (VAT) and the newly implemented Corporate Tax. While both are regulated by the Federal Tax Authority (FTA), they are fundamentally different in how they apply to your business.
If you are a business owner, freelancer, or startup founder, understanding the difference between VAT and Corporate Tax is essential—not just to stay compliant, but to avoid unnecessary penalties.
This blog breaks down both taxes in simple, practical terms.
What is VAT?
VAT (Value Added Tax) is an indirect tax on the sale of goods and services. Introduced in the UAE in 2018, VAT is collected from customers and passed to the FTA by the business.
Key features:
- Standard rate: 5%
- Applied at each stage of the supply chain
- Collected from customers, not paid from business profit
- Filing is quarterly or monthly
- Mandatory if annual taxable supplies exceed AED 375,000
Example:
If you invoice a client for AED 1,000, you must add AED 50 as VAT and remit that to the government.
What is Corporate Tax?
Corporate Tax is a direct tax on a company’s net profit. Implemented in June 2023, this tax is applied annually to taxable persons operating in the UAE.
Key features:
- Tax rate: 9% on profit above AED 375,000
- Applied on business profits, not sales
- Paid by the business itself
- Filing is once per year
- Mandatory for all entities with taxable income, including Free Zone Persons (unless exempt)
Example:
If your company makes AED 500,000 in profit, you pay 9% on AED 125,000 (above the exempt threshold), totaling AED 11,250.
VAT vs. Corporate Tax – Quick Comparison
| Criteria | VAT | Corporate Tax |
|---|---|---|
| Type of tax | Indirect (on sales) | Direct (on net profit) |
| Tax rate | 5% | 9% (above AED 375,000) |
| Paid by | Customers | The business itself |
| Applies to | Goods and services | Profits from business activity |
| Filing frequency | Monthly or quarterly | Annually |
| Introduced in | 2018 | 2023 |
Do I Need to File Both?
Yes, most UAE businesses need to handle both taxes if:
- Your revenue exceeds AED 375,000 per year (VAT registration threshold)
- Your net profit exceeds AED 375,000 per year (Corporate Tax threshold)
Important: Even if you are a Free Zone company that qualifies for 0% Corporate Tax, you must still file your return and meet compliance requirements.
What Happens If You Don't Comply?
Penalties can be severe for both:
- VAT late filing: AED 1,000 (first offense), then AED 2,000
- Corporate Tax late filing: Starts at AED 500 and increases
- Possible audits, license renewal issues, and cash flow disruption
How Finzoryx Helps
At Finzoryx, we support startups, freelancers, and SMEs with full-service tax and compliance solutions:
- VAT registration & return filing
- Corporate Tax registration, advisory, and return filing
- Audit-ready financial reporting
- Penalty Shield service to avoid costly mistakes
- 3C Model: Clarity, Compliance, Confidence
Our goal is to make taxes simple—so you can focus on growing your business.
Final Thoughts
VAT and Corporate Tax may seem similar, but they apply in very different ways. Knowing the difference helps you stay compliant, plan your cash flow better, and avoid unnecessary penalties.
If you are unsure about your obligations or want expert support, Finzoryx is here to help.
Book your free consultation today.
Email: connect@finzoryx.com
Phone: +971 503978121