Construction and contracting companies pay UAE corporate tax like any other business — 0% on the first AED 375,000 of taxable income and 9% above it — but the sector's contract accounting makes the computation harder than the rate. The return is won or lost in how you recognize revenue, cost retention and subcontractor payments across multi-year projects.
TL;DR
- Corporate tax applies at 9% on taxable income above AED 375,000 under Article 5 of Federal Decree-Law No. 47 of 2022; the first AED 375,000 is taxed at 0%.
- Multi-year contracts are generally recognized over time under IFRS 15 — revenue follows progress, not cash received or invoices raised.
- Retention receivables and unbilled work-in-progress are part of accounting profit and therefore of taxable income, even though the cash arrives later.
- Subcontractor payments are deductible when incurred and properly documented; payments to related parties must be at arm's length under Articles 34–35.
- Net interest expense is deductible only up to 30% of tax-adjusted EBITDA (Article 30) — relevant for plant-financed contractors.
What corporate tax means for a contractor
There is no construction-specific corporate tax regime in the UAE. What makes contracting different is the pattern of the business: projects that span financial years, progress billings that lag work done, retention withheld for a year or more, and cost structures split across materials, labour and subcontractors. The corporate tax law applies the same rules as everyone else — the risk is that contract accounting pushes income into the return differently than cash flow suggests.
| Item | Treatment | Reference |
|---|---|---|
| Taxable income up to AED 375,000 | 0% rate | Article 5, Federal Decree-Law No. 47 of 2022 |
| Taxable income above AED 375,000 | 9% rate | Article 5, Federal Decree-Law No. 47 of 2022 |
| Small Business Relief (revenue ≤ AED 3 million) | Optional election; 0% for tax periods ending on or before 31 December 2029 | Article 21, Federal Decree-Law No. 47 of 2022 |
| Revenue on multi-year contracts | Recognized over time under IFRS 15 where the over-time criteria are met | Accounting standards accepted by the FTA |
| Retention receivables | Recognized as revenue when earned; taxed as part of accounting profit | Accounting standards accepted by the FTA |
| Subcontractor payments | Deductible when incurred, with documentation | Article 28, Federal Decree-Law No. 47 of 2022 |
| Net interest expense (plant or project finance) | Deductible up to 30% of tax-adjusted EBITDA | Article 30, Federal Decree-Law No. 47 of 2022 |
| Client entertainment and site events | 50% of the cost disallowed | Article 28, Federal Decree-Law No. 47 of 2022 |
| Records and working papers | Keep for seven years after the tax period end | Article 56, Federal Decree-Law No. 47 of 2022 |
Revenue recognition is the main event
A contractor's accounts are prepared under IFRS or IFRS for SMEs, and IFRS 15 generally requires long-term construction contracts to be recognized over time as work progresses. Three consequences matter for the return:
- Revenue is not billings. Work certified but not yet invoiced, and variations approved but not yet billed, sit in the profit and loss account — and therefore in taxable income — before any cash arrives.
- Retention is revenue, not a receivable to defer. Retention withheld by the employer is part of contract revenue once the underlying work is done. Deferring it to match cash receipt is a common misstatement the FTA's assessment would flag.
- Loss-making or early-stage projects still produce taxable amounts. Over-time recognition can put profit into a tax period in which the company has drawn nothing from the project. Plan cash tax payments against the nine-month filing deadline, not against project cash flow.
Job costing, WIP schedules and retention tracking sit underneath all of this — the bookkeeping side is covered in our guide to bookkeeping for construction companies in the UAE.
Subcontractors and related parties
Subcontractor costs are fully deductible as business expenses when incurred, provided invoices and agreements are on file. Two traps:
- Related-party subcontracting — using a sister company or an owner-linked entity — must be priced at arm's length under Articles 34–35 of Federal Decree-Law No. 47 of 2022. Markup on related-party subcontracting should mirror what an independent subcontractor would charge.
- Payments without invoices or contracts weaken the deduction on FTA review. Keep the subcontract, the invoice and the payment record together for seven years.
Free zone contractors
A free zone contracting company does not automatically keep the 0% rate. Qualifying Free Zone Person status depends on deriving qualifying income from the activities listed in Cabinet Decision No. 55 of 2023, and construction services supplied to mainland customers generally do not fall within those qualifying activities — such income is typically taxed at the standard 9%. Conditions and de-minimis limits are set out in our free zone corporate tax guide.
Small Business Relief
Contractors whose revenue does not exceed AED 3 million in the relevant tax period and all previous tax periods can elect Small Business Relief and pay 0% for tax periods ending on or before 31 December 2029. The election is made on the return and is not automatic; multinational groups and Qualifying Free Zone Persons are excluded. Worked examples are in our Small Business Relief guide.
Registration and filing deadlines
Registration on EmaraTax is mandatory; the deadline depends on your trade licence issuance month under FTA Decision No. 3 of 2024, and late registration carries an AED 10,000 penalty under Cabinet Decision No. 75 of 2023. The return itself is due within nine months of the financial period end (Article 53), and late filing starts at AED 500 plus AED 1,000 for each additional month. The step-by-step filing process is in our guide on how to file corporate tax returns in the UAE.
How Finanshels handles this
We run contractor books with contract-ledger discipline — WIP schedules, retention tracking, subcontract documentation — and file the corporate tax return with the over-time revenue computation documented. Book a free consultation to hand the function over.
FAQs
Do construction companies pay corporate tax in the UAE?
Yes — 9% on taxable income above AED 375,000 and 0% below it, the same as any other business. Contractors with revenue up to AED 3 million can elect Small Business Relief and pay 0% for tax periods ending on or before 31 December 2029.
When is revenue recognized on a long-term construction contract?
Under IFRS 15, generally over time as work progresses, once the over-time criteria are met. Revenue is measured by progress — not by invoices raised, cash received, or retention released.
Is retention receivable taxable before the cash is received?
Yes. Retention is contract revenue earned on work completed, so it forms part of accounting profit and taxable income in the period the work is performed, even though cash arrives months later.
Can a free zone contracting company keep the 0% corporate tax rate?
Usually not for mainland construction work — construction services are generally not among the qualifying activities in Cabinet Decision No. 55 of 2023, so mainland project income is typically taxed at 9%. Check your specific activities against the qualifying conditions.
Last reviewed: September 2026 by Gautam Sanoj, Associate Manager – Tax Advisory, Finanshels. Rules as of Federal Decree-Law No. 47 of 2022, Cabinet Decision No. 55 of 2023 and Cabinet Decision No. 75 of 2023; verify current requirements against the FTA (tax.gov.ae) before acting.
