Markus Susilo, Partner & International Business Leader at Baker Tilly, outlines how startups in the UAE can navigate the new corporate tax regime, VAT, and Free Zone incentives through smart compliance and early tax planning.

What are the key corporate tax obligations that startups in the UAE need to be aware of under the new tax regime?
A startup must assess corporate tax (CT) registration as soon as it is established or begins operations. Deadlines differ depending on the legal form and tax residence of the person. Once registered, it must file annual CT returns and make payments on time to avoid penalties.

At what point does a startup become liable for corporate tax in the UAE, and how is the taxable threshold calculated for small businesses?
A business becomes liable for CT once registered as a taxable person. The worldwide income of a UAE tax resident is subject to tax in the UAE, while non-UAE tax residents are taxed only on certain UAE-sourced income or UAE-attributed taxable income. Small Business Relief applies where the annual revenue of a taxable person does not exceed AED 3 million, provided that it is neither a Qualifying Free Zone Person (QFZP) nor a member of Multinational Enterprise group. This relief is available until the end of 2026. Importantly, the AED 3 million revenue cap is assessed for each tax period and each previous period within that window. Once a business exceeds AED 3 million in revenue in a tax period, it becomes ineligible for the relief going forward. 

How should startups manage VAT registration and compliance, especially if they’re pre-revenue or just beginning to generate income?
VAT rules are separate from CT. As soon as a business makes its first transaction, it must assess whether this triggers its obligation or eligibility to register for VAT. Pre-revenue status does not relieve businesses from monitoring VAT obligations. Imports of goods and services must also be considered. In general, there are two thresholds to be observed: one for mandatory registration and one for voluntary registration. Mandatory registration has a specific deadline, whereas voluntary registration does not. The deadline depends on whether the threshold is breached or expected to be breached based on the historical or future threshold test.

Many startups rely on foreign investment and cross-border transactions. What tax considerations should they keep in mind under UAE rules?
The key advice is to always perform a tax analysis for all transactions, including international dealings. Before a startup signs a cross-border contract or accepts a foreign investment, it should consider consulting a tax advisor or using in-house expertise to check the overall UAE tax implications. This is especially crucial when the location of decision makers and/or staff of the UAE business is outside the UAE. Certain activities performed outside the UAE for the UAE business may have hidden adverse tax implications outside the UAE. 

Are there any common tax compliance mistakes that startups in the UAE tend to make, particularly in their early stages?
Startups often underestimate or delay tax compliance. Failing to comply with CT or VAT obligations results in missed registrations, inaccurate records, and late filings. The UAE aligns its tax framework with international standards, and non-compliance attracts penalties. Ignoring or undermining tax laws – even inadvertently – is something no business should do. The UAE has invested effort into aligning its tax system with international best practices and expects even small startups to comply fully. Believing that “we’re just a startup, so compliance can wait” is a serious misstep. Startups should treat tax compliance as a fundamental part of running the business from day one. This is also general practice in mature tax jurisdictions.

How do you see the evolving UAE tax framework impacting the startup ecosystem in the next 2–3 years?
Broadly, we expect a two-fold effect: greater compliance requirements on one hand, and greater stability and international credibility on the other. Another development is stricter enforcement by the Federal Tax Authority (FTA) to ensure that tax laws are followed. This could include audits or penalties for those who do not comply, signaling that even startups must take tax matters seriously from inception. We will also likely see the UAE tax system mature further with additional guidance and possibly amendments to the law as authorities learn from initial implementation.

On the positive side, the evolving tax framework brings clarity and support for startups. The government is conscious of maintaining a startup-friendly environment. For example, the Small Business Relief measure was introduced to support startups and small businesses by reducing their corporate tax burden and compliance costs in the initial years. Moreover, as the UAE aligns with international tax practices, startups could find it easier to expand abroad or attract foreign investment, since investors and partners take comfort in transparent, rule-of-law jurisdictions. 

What advice would you give startup founders in terms of building a tax-efficient business from day one?
Building a “tax-efficient” business in the UAE (or anywhere) means structuring operations in a way that fully complies with the applicable laws while taking advantage of any incentives or reliefs available. My first piece of advice is that founders should incorporate tax considerations into their decision-making from the very start of the business. One practical approach is to map out potential tax “pain points” or exposures in the business plan. Being tax-efficient often means proper planning and documentation, rather than any aggressive tax avoidance scheme. It is about ensuring you don’t pay more tax than needed, and you don’t pay penalties either.

My second key advice is not to hesitate to seek professional help when needed. If the business is not in the “tax advisory” sphere itself, engaging a qualified tax advisor can be extremely valuable.

Lastly, founders should focus on good governance and record-keeping as a cornerstone of tax efficiency.

How do Economic Substance Regulations (ESR) apply to startups, and what should founders be aware of when engaging in relevant activities?
Cabinet Decision No. 57 of 2020 stated that UAE-licensed businesses needed to comply with ESR for financial years starting on or after 1 January 2019. This was subsequently amended by Cabinet Decision No. 98 of 2024, which provides that ESR no longer apply to any financial year ending after 31 December 2022. This means that for a new startup launched now (in 2025 or later), ESR compliance obligations are not relevant. However, certain requirements have been embedded in provisions of the UAE CT law. A notable example is the need for sufficient economic substance in a UAE Free Zone if a company wants to take the Free Zone tax relief.

Many startups operate in Free Zones to benefit from tax incentives. How does the new corporate tax law affect Free Zone startups, and what conditions must they meet to retain their 0% rate?
Free Zone companies are taxable persons but may benefit from a 0% rate if classified as QFZPs. To qualify, they must fulfill all of the following conditions:

• Be incorporated in a  Free Zone
• Maintain adequate substance
• Earn Qualifying Income
• Comply with the de minimis rule
• Comply with the arm’s-length principle for transactions with Related Parties and Connected Persons, including documentation
• Prepare and maintain audited financial statements
• Not elect to be taxed at 9%

For startups considering whether to incorporate in a Free Zone or on the Mainland, what are the key tax differences they should factor into their decision-making?
There is no one-size-fits-all answer. Each startup should closely examine its business model, target market, and growth plans in light of these tax differences. Sometimes a relief or incentive that looks good initially (e.g., Free Zone 0% or a specific deduction) might have adverse implications later if circumstances change. Founders should scenario-plan: “If we hit X revenue or pivot to do Y activity, will this structure still be optimal?” It may be beneficial to consult a tax advisor to run the numbers for both scenarios over a projected timeline. In summary, Mainland vs. Free Zone involves a trade-off between guaranteed but moderate taxation and simplicity (Mainland) versus potential 0% taxation with conditions (Free Zone).

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Berlin Joins Paris, Barcelona, Amsterdam, and Rome: How Rising Tourism and Tax Policies Will Transform European Travel in 2025

As 2025 approaches, Berlin joins Paris, Barcelona, Amsterdam, and Rome in preparing for an exciting rise in tourism. Major events, such as the World Cup and World Series, are expected to attract millions of visitors to these iconic European cities. With this surge in travel, cities are adjusting their tourism and tax policies to manage the increased demand. Berlin, alongside other top destinations like Paris and Barcelona, is reshaping its policies to strike the right balance between welcoming more visitors and maintaining local services.

These changes in tax structures will have a direct impact on how tourists experience these cities in 2025. From accommodation to public services, tourism taxes will play a key role in shaping the travel landscape. As these cities embrace this transformation, they aim to ensure both a positive visitor experience and sustainable growth.

Major Sports Events Fueling Travel Demand

Europe has always been a top travel destination. From its rich history and culture to stunning landmarks and vibrant cities, it’s no surprise that millions of people travel here each year. However, 2025 is expected to be a unique year. With the World Cup 2026 and World Series 2025 bringing millions of fans and tourists to the continent, cities are bracing themselves for an overwhelming demand.

As the host cities prepare for this influx, there will be a greater strain on accommodation, transport, and public services. Cities will need to manage this surge effectively to ensure both the visitors and residents benefit from the increased tourism. But there’s one critical aspect they must consider: how tourism taxes are handled.

How European Cities Are Preparing for More Visitors

The surge in travel means cities like Berlin, Paris, Barcelona, and Amsterdam will face an increased number of visitors. To handle this, they need to prepare their tourism infrastructure and ensure their tax policies can support both the locals and the economy. Let’s take a look at how each city plans to tackle the influx and the role taxes will play in this process.

Berlin: A City with an Eye on Sustainability

Berlin is one of the most popular destinations in Europe. Known for its historical landmarks, rich cultural scene, and vibrant nightlife, Berlin attracts millions of visitors every year. The city also has a tourism tax known as the Beherbergungssteuer or accommodation tax. This tax applies to hotel stays and ranges based on the price of the accommodation. Visitors who book more expensive rooms will pay higher taxes. However, this is where the challenge lies: With more visitors expected for the World Cup, the city is considering adjusting these taxes to keep it competitive.

Berlin must strike a balance between generating revenue and not scaring off tourists with high accommodation taxes. To help ease the burden, the city may temporarily reduce its tax rates during major events like the World Cup. This would keep accommodation costs down and encourage more visitors to book stays.

In addition to these changes, Berlin is also focused on sustainable tourism. With the city’s commitment to eco-friendly practices, they may consider adjusting the tax policies to fund environmental initiatives, such as improving transportation and public services.

Paris: A Tourist Hub with Dynamic Tax Rates

Paris, known for its iconic landmarks like the Eiffel Tower and the Louvre, is another city that will see an influx of visitors in 2025. The French capital imposes an occupancy tax on overnight stays, which ranges from €0.22 to €3.30 per person per night, depending on the type of accommodation. As more people flock to Paris for the World Cup, the city must think about its tax policies. While Paris may not lower its tax rates, it will likely invest this revenue in improving the tourism experience, including enhancing infrastructure and services.

It’s also worth mentioning that Paris has a standard VAT rate of 20%, which is applied to most services, including accommodation. The city could consider offering tax exemptions for specific tourism services during large events, which would reduce costs for visitors and increase overall tourism demand.

Barcelona: Boosting Tourism with Smart Taxing

Barcelona is one of Europe’s hottest tourist destinations, and the 2025 World Series will bring even more visitors to this Spanish gem. To cope with the expected increase, Barcelona imposes a tourist tax on hotel stays. This tax varies based on the type of accommodation, from budget hostels to luxury hotels. The revenue generated from this tax helps maintain the city’s infrastructure and public services.

Like other cities, Barcelona is considering temporary tax reductions or exemptions for certain types of accommodation. By doing so, the city aims to attract more visitors while ensuring that tourists can enjoy their stay without feeling burdened by high taxes. Moreover, Spain’s standard VAT rate of 21% applies to most services, which could affect the cost of travel-related services in the city.

Amsterdam: A Smart Approach to Managing Visitors

Amsterdam, with its beautiful canals and vibrant culture, is a top destination in Europe. The city imposes a tourist tax on overnight stays, which is calculated as a percentage of the accommodation cost. The more expensive the accommodation, the higher the tax. For the World Cup and World Series visitors, this means they could face a significant increase in the total cost of their trip. However, Amsterdam is considering adjusting these taxes during major events to ensure it remains an attractive destination.

The city also applies a standard VAT rate of 21% on most services, including tourism-related services. However, the government may consider offering reduced VAT rates or exemptions for certain services during high-demand periods to boost tourism further.

Rome: Welcoming the World with Adjusted Taxes

Rome, with its ancient ruins and vibrant culture, is set to welcome even more visitors in 2025. Rome imposes a city tax on overnight stays, which varies based on the type of accommodation. Visitors staying in higher-end hotels will pay a higher tax, while those opting for budget options will pay less. The city is expected to adjust these taxes during major events to ensure that it remains an affordable destination for all types of tourists.

Rome’s VAT rate is 22%, one of the highest in Europe. However, like other cities, it may reduce or exempt taxes for certain tourism services to keep visitors happy. The revenue from these taxes is crucial for the city’s infrastructure and public services, ensuring that Rome remains a top choice for travelers from around the world.

The Economic Impact of Adjusting Tourism Taxes

Tourism taxes are crucial to a city’s economy. The revenue generated from these taxes helps maintain and improve infrastructure, public services, and local businesses. However, cities must be careful not to overburden tourists with high taxes, especially during peak seasons like the World Cup and World Series.

If taxes are too high, tourists may choose to visit other cities with lower costs. However, by adjusting tax rates or offering exemptions for certain services, cities can attract more visitors without significantly impacting their overall revenue. The key is finding the right balance between generating income and maintaining competitiveness.

For instance, some cities may lower their occupancy taxes temporarily during major events. This would make hotel stays more affordable and encourage tourists to visit. Others may implement special VAT rates or reduce taxes on transportation and dining services to make the overall trip more affordable.

By investing the revenue generated from these taxes into improving the city’s infrastructure, cities can offer a better experience for tourists. This can include better public transportation, cleaner streets, and more tourist-friendly amenities. It’s all about making sure that the city remains attractive to visitors while ensuring that the local economy benefits from the tourism boom.

Sustainable Tourism and the Role of Taxes

Sustainability is becoming a major focus for many cities, and tourism taxes are one way to fund green initiatives. For example, Berlin has made efforts to focus on eco-friendly tourism, and it may use tourism tax revenue to fund sustainable transportation options and improve the city’s environmental footprint.

Sustainable tourism taxes could include charges for using public transport, renting bikes, or even for entering certain cultural or heritage sites. These taxes aim to reduce the environmental impact of mass tourism while still allowing visitors to enjoy everything the city has to offer. Cities like Amsterdam and Barcelona may also introduce similar policies to make their tourism sectors more eco-friendly.

Looking Ahead: What’s Next for European Cities?

As the 2026 World Cup and the 2025 World Series draw nearer, European cities will continue to refine their tourism tax policies. These changes will not only affect the visitors coming for these major events but also shape the tourism landscape for years to come.

The key for cities will be to strike a balance between welcoming visitors and maintaining the quality of life for residents. Adjusting tourism taxes in a way that maximizes revenue while enhancing the visitor experience is crucial for future success. Cities must be agile, responsive to the needs of both tourists and residents, and focused on sustainable practices that ensure tourism benefits everyone.

The travel demand for these world-class events will undoubtedly change the way European cities operate. By implementing the right tax policies, cities can boost their economy, enhance the tourist experience, and create a sustainable future for all.

A Bright Future for European Tourism

The tourism tax landscape in Europe’s key cities is about to change in exciting ways. With the expected rise in travel demand due to the World Cup and World Series, cities like Berlin, Paris, Barcelona, and Amsterdam will need to adjust their tax policies to accommodate the influx of visitors. These changes will not only impact the local economy but also shape the future of tourism in Europe.

By carefully managing tourism taxes, cities can ensure they remain attractive to visitors while supporting their economy and infrastructure. The future of European tourism looks bright, and with smart tax policies, these cities can continue to thrive as top destinations for travelers around the world.

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