How Do I Calculate Corporate Tax in the UAE?

The UAE’s corporate tax regime, implemented from June 2023, has shifted the tax landscape for businesses in the region. While the corporate tax rate is relatively low, understanding how to calculate it is essential to ensure compliance. Whether you are a small business owner or managing a larger corporation, knowing how to determine your taxable income and the tax payable is crucial. In this post, we’ll break down how corporate tax is calculated in the UAE and provide a clear path to ensure that your business meets the requirements.

1. Corporate Tax Rates in the UAE

The corporate tax rate in the UAE is set at 9% for taxable profits exceeding AED 375,000. For businesses with profits below this threshold, no corporate tax is applied. Free zone companies that meet the qualifying criteria may also benefit from a 0% tax rate on their income.

Example:

• Profits of AED 400,000
  The corporate tax would apply only to the amount exceeding AED 375,000:
  AED 400,000 - AED 375,000 = AED 25,000
  Corporate tax payable: 9% of AED 25,000 = AED 2,250.

2. Taxable Income

To calculate corporate tax, you first need to determine your taxable income. Taxable income is typically calculated by taking your business’s net accounting profit and adjusting it for any non-deductible expenses, exempt income, or other adjustments as prescribed by the UAE tax law.

Key steps to calculating taxable income:

• Start with your net profit from your financial statements.
• Add back non-deductible expenses such as penalties or fines.
• Deduct exempt income (for example, profits from a qualifying free zone).
• Adjust for any specific allowances like losses carried forward.

3. Corporate Tax Calculation Process

Here’s a step-by-step approach to calculate your corporate tax in the UAE:

• Step 1: Determine your net accounting profit based on your audited financial statements.
• Step 2: Apply any necessary adjustments such as non-deductible expenses and exempt income.
• Step 3: Deduct the AED 375,000 threshold for small businesses.
• Step 4: Apply the 9% corporate tax rate to the remaining taxable income.

4. Special Cases for Free Zones

Free zone companies can continue to enjoy a 0% tax rate on income from qualifying activities, provided they meet the regulatory requirements. However, if a free zone business conducts business with mainland UAE entities, corporate tax may apply to that portion of their income.

For more details, businesses should refer to the official guidelines provided by the Federal Tax Authority (FTA).

5. Maintaining Proper Records

To calculate corporate tax correctly, businesses must maintain accurate financial records. This includes:

• Audited financial statements
• Detailed accounts of revenues and expenses
• Records of transactions with related parties (to comply with transfer pricing rules)

Proper documentation not only ensures correct tax calculations but also helps during tax audits and filings.

Conclusion

Calculating corporate tax in the UAE involves understanding your business’s taxable income and applying the correct rates and exemptions. By keeping accurate financial records and knowing which adjustments to apply, businesses can stay compliant and avoid costly penalties. Whether your business operates in the mainland or in a free zone, it is crucial to stay updated on the tax laws and filing requirements.

For more comprehensive information on corporate tax, visit the UAE Ministry of Finance or consult a tax advisor.

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