How to Calculate Corporate Tax for My UAE Business?

With the introduction of corporate tax in the UAE, many businesses are now required to understand how to calculate their taxable income and determine their tax liabilities. Whether you’re a small business owner or managing a large enterprise, knowing how corporate tax works can help you stay compliant and make informed financial decisions. In this post, we’ll guide you through the key steps to calculate corporate tax for your UAE business.

What is Corporate Tax in the UAE?

Corporate tax is a direct tax levied on the profits of businesses. In the UAE, the corporate tax rate is set at 9% for businesses whose taxable income exceeds AED 375,000. Any income below this threshold is exempt from corporate tax, making the UAE’s corporate tax regime one of the most business-friendly in the world. However, understanding how to calculate your taxable income and apply the correct tax rate is essential to avoid penalties.

Step-by-Step Guide to Calculating Corporate Tax

Here is a simple breakdown of how to calculate corporate tax for your UAE business:

1. Determine Your Taxable Income

Taxable income is the profit generated by your business after deducting allowable expenses. Here’s how to calculate it:

• Revenue: This is the total income earned by your business from various sources, such as sales, services, or other business activities.
• Expenses: Deduct your business expenses from your revenue. This includes operating costs like salaries, rent, utilities, marketing, and other costs that are necessary for running your business.

Formula:
Taxable Income = Revenue - (Allowable Expenses)

2. Apply Corporate Tax Exemptions

In the UAE, certain businesses and income streams are exempt from corporate tax. For example, businesses operating in free zones may be eligible for full or partial tax exemptions. Additionally, income generated below AED 375,000 is exempt from corporate tax.

If your business qualifies for any exemptions, subtract the exempted income from your taxable income.

Formula:
Taxable Income After Exemptions = Taxable Income - Exempted Income

3. Apply the Corporate Tax Rate

Once you’ve calculated your taxable income and applied any relevant exemptions, you can now apply the corporate tax rate of 9%.

Formula:
Corporate Tax Liability = Taxable Income After Exemptions × 9%

For example, if your taxable income after exemptions is AED 500,000, your corporate tax liability would be:

500,000 × 9% = AED 45,000

This is the amount of corporate tax you owe to the Federal Tax Authority (FTA).

Example of Corporate Tax Calculation

Let’s consider a business with the following details:

• Revenue: AED 1,000,000
• Allowable Expenses: AED 400,000
• Taxable Income: AED 600,000 (Revenue - Expenses)

Now, let’s apply exemptions:

• The first AED 375,000 is exempt from corporate tax.
• Taxable income after exemptions: AED 600,000 - AED 375,000 = AED 225,000

Finally, apply the 9% corporate tax rate:

• AED 225,000 × 9% = AED 20,250

The corporate tax liability for this business would be AED 20,250.

Staying Compliant with Corporate Tax Regulations

To ensure compliance with UAE corporate tax regulations, you must:

• Register your business with the FTA for corporate tax.
• Maintain proper financial records: Accurate bookkeeping and financial statements are essential for determining your taxable income.
• Submit your tax return on time: Businesses will be required to file corporate tax returns with the FTA annually.

For more information on staying compliant, you can refer to the Federal Tax Authority’s corporate tax guide.

‍