How to Calculate UAE Corporate Tax & Adjustments

All You Need to Know About UAE Corporate Tax Calculation

Every business in the UAE must understand how to calculate corporate tax and use all allowed adjustments. The UAE started corporate tax to bring in new revenue, follow international tax rules, and move away from depending only on oil. This change will help the country grow and attract more business.

The UAE introduced value-added tax in 2018. Now, corporate tax will begin from June 2023 for all businesses. The tax applies to all commercial activities in the seven emirates. The government promised that free zones and some other incomes will get exemptions. Let’s see how companies must calculate and pay corporate tax.

Key Points Before Calculating Corporate Tax

• The government imposes corporate tax every year.
• Every taxable person must calculate their own tax by self-assessment.
• Companies must make adjustments to accounting income to find taxable income.
• All values should be in UAE Dirham (AED).
• Tax is based on taxable income for that financial year.
• Businesses must pay tax within nine months after their tax period ends.

Corporate Tax Rates in the UAE

The UAE uses a simple two-rate system for corporate tax:

• 0% tax on income up to AED 375,000.
• 9% tax on income above AED 375,000.

Example:
Let’s say a company’s final taxable income after deductions is AED 580,000.

• The first AED 375,000 is taxed at 0%.
• The remaining AED 205,000 (580,000 – 375,000) is taxed at 9%.
• The corporate tax owed is AED 18,450 (205,000 x 9%).

What Types of Income Are Exempt from Corporate Tax?

Some incomes are exempt from UAE corporate tax. You can’t claim deductions for these, but you also don’t pay tax on them:

• Dividends from foreign permanent establishments
• Capital gains from some shareholdings (less than 5%)
• Individual salary income and personal investments
• Other special exemptions given by the law

These exemptions prevent double taxation and support business growth.

What Expenses Are Deductible?

• Most business expenses can be deducted if they meet the law’s conditions.
• Deductions include costs of business operations, depreciation, license renewal, and certain government fees.
• There are limits on some deductions, like only 50% of client entertainment costs and interest on some loans.

How to Calculate Taxable Income

1. Start with net profit before tax from your financial statements.
2. Subtract all allowable expenses and deductions.
3. Remove exempt income from the total.
4. Add back any expenses that are not allowed as deductions.
5. The remaining amount is your taxable income.
6. Apply the tax rates.

Tax Loss Relief & Transfer

Tax loss relief: If your business has a loss, you can carry it forward and use it in future years. You can only set off up to 75% of taxable income each year.

Tax loss transfer: Companies with certain ownership links (like parent and subsidiary, both residents, not exempt) can transfer losses to each other to lower the overall tax bill.

Tax Group Formation

• Resident companies can form tax groups.
• The main company is called the parent; others are subsidiaries.
• All members must be residents and follow group rules.
• The group files one return and can share losses.

Adjustments for UAE Corporate Tax

Businesses must adjust their income for tax as per UAE law:

• Unrealized gains or losses under Article 20(3) of CT law
• Exempt incomes listed in Chapter 7
• Claimed reliefs in Chapter 8
• Claimed deductions under Chapter 9
• Related party transactions in Chapter 10
• Tax loss relief as described in Chapter 11
• Special incentives for qualifying activities
• Other ministerial notifications

Always use the official guidelines and update your process if the law changes.

How Mubarak Al Ketbi (MAK) Auditing Can Help

When it comes to tax, you shouldn’t bite off more than you can chew! Mubarak Al Ketbi (MAK) Auditing helps businesses in the UAE calculate, adjust, and file their corporate tax the right way. Our experts can:

• Calculate taxable income accurately
• Maximize deductions and use exemptions
• Advise on group tax filings and loss transfers
• Ensure your filings meet all rules and deadlines

For more information:

• Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
• Or contact/WhatsApp: +971 50 276 2132