HOW CORPORATE TAX IS CALCULATED IN THE UAE WITHIN GENERAL TAX RULES

The UAE introduced a federal corporate tax regime starting June 1, 2023, aligning with international standards while maintaining its appeal as a business hub. Here’s a brief overview of corporate tax calculation in the UAE:

Key Features

Tax Rates

-0% on taxable income up to AED 375,000.

-9% on taxable income above AED 375,000.

Applicability

Applies to UAE-based businesses including free zone persons (those having a qualifying status benefit from 0% rate), natural persons in business, and foreign entities with a UAE presence.

Exemptions

Government entities, qualifying investment funds, and natural resource extraction businesses.

Calculation Steps

Determine Taxable Income

Based on accounting net profit, adjusted for several tax differences including the exempt income (e.g., dividends, capital gains on the sale of qualifying shareholdings) and non-deductible expenses.

Deduct Allowable Expenses

Includes salaries, rent, utilities, depreciation, and marketing. Excludes personal expenses, fines, and non-qualifying donations.

Apply Tax Rates

-0% on income up to AED 375,000.

-9% on income exceeding AED 375,000.

Account for Tax Credits

Claim credits for taxes paid abroad to avoid double taxation.

Assess if you qualify for small business relief

Businesses with revenues up to AED 3M may apply for exemption from corporate tax in each tax period (at the date – until 2026 inclusive).

Compliance Requirements

– Tax Period: Aligns with the financial year, except for the 1^st tax period which may last from 6 to 18 months.

– Filing: Annual electronic returns required.

– Record-Keeping: Maintain records for seven years.

– Penalties: Non-compliance may result in fines. 

Free Zones

Free zone persons may retain tax incentives if they meet substance and qualifying income criteria. Onshore income is taxable on general basis unless received from conducting qualifying activities and/or from other free zone persons in the UAE.

The UAE’s corporate tax system is competitive and rather straightforward although it lacks practical application. Businesses should ensure compliance and seek professional advice to optimize their tax position.

For more detailed information, you can contact us info@cmbs-tax.com