Corporate Tax Calculation: How to Work Out Your Taxable Income

Understanding how Corporate Tax is calculated in the UAE is crucial for businesses to remain compliant and plan effectively. Knowing your taxable income ensures you pay the right amount and avoid penalties.

What Is Taxable Income?

Taxable income is the portion of your profits that is subject to Corporate Tax. It is calculated after adjusting your business’s accounting profits for allowable deductions, exemptions, and reliefs.

• Accounting profits: Your net profit according to financial statements.

• Adjustments: Include items added back or deducted based on UAE Corporate Tax rules.

Step-by-Step Corporate Tax Calculation

Step 1: Start with Accounting Profits

• Begin with the profit reported in your financial statements.

Step 2: Add Non-Deductible Expenses

• Certain expenses, such as fines, penalties, or personal expenses, are not deductible under UAE Corporate Tax law.

Step 3: Deduct Allowable Expenses and Reliefs

• Business expenses directly related to generating income are deductible.

• Include qualifying charitable donations, approved incentives, and Small Business Relief if applicable.

Step 4: Adjust for Exempt Income

• Income from qualifying free zone activities or other exemptions may reduce taxable income.

Step 5: Apply the Tax Rate

• Standard 9% Corporate Tax applies to taxable profits above AED 375,000.

• Profits up to AED 375,000 benefit from 0% Corporate Tax under Small Business Relief.

Step 6: Calculate the Tax Payable

• Multiply taxable profits by the applicable tax rate to determine your Corporate Tax liability.

Example Calculation

Suppose a UAE business has:

• Accounting profit: AED 500,000

• Non-deductible expenses: AED 50,000

• Allowable deductions: AED 25,000

Taxable income = 500,000 + 50,000 – 25,000 = AED 525,000

Tax payable = (525,000 – 375,000) × 9% = AED 13,500

This example highlights how the AED 375,000 threshold protects small businesses, while larger profits are taxed fairly.