Introduction

One of the most frequently asked questions since the UAE Corporate Tax came into effect is:

“How do I calculate my taxable income?”

If you’re a business operating in the UAE, it’s essential to know how to arrive at your corporate taxable income, especially since this figure determines whether you pay 0% or 9% tax. In this article, we explain the calculation process using real-world examples and highlight the adjustments, exemptions, and deductions you must consider.

What is Taxable Income?

Taxable income is your net profit after applying certain adjustments required under UAE Corporate Tax Law. It forms the basis on which your Corporate Tax liability is calculated.

The formula is:

• Accounting Net Profit
  (as per IFRS or other accepted accounting standards)
• Non-deductible expenses
• Taxable income adjustments
• Exempt income
• Corporate Taxable Income

Step-by-Step: How to Calculate Corporate Taxable Income

Step 1: Start With Your Net Profit (From Financial Statements)

This is the profit before tax, reported in your income statement, based on IFRS or approved accounting methods.

Step 2: Adjust for Non-Deductible Expenses

Some expenses cannot be claimed for tax purposes, such as:

• Fines and penalties
• Bribes or illegal payments
• Personal expenses
• Entertainment exceeding allowed limits
• Donations not to approved public benefit entities

These must be added back to your accounting profit.

Step 3: Deduct Exempt Income

Certain types of income are exempt from tax, including:

• Dividends and capital gains from qualifying shareholdings
• Income from foreign branches (if you elect for exemption)
• Income from Qualifying Free Zone activities (if you meet QFZP criteria)

This exempt income should be subtracted from your profit.

Step 4: Apply Tax Reliefs and Incentives (if applicable)

You may be eligible for:

• Small Business Relief (if revenue < AED 3 million)
• Group relief (for losses or transfers within a tax group)
• Restructuring relief (for qualifying business reorganizations)

These reliefs can reduce your taxable income, depending on eligibility.

Step 5: Finalize the Taxable Income

After all adjustments, the resulting figure is your Corporate Taxable Income, which will be taxed at:

• 0% on the first AED 375,000
• 9% on the amount exceeding AED 375,000

Example: Corporate Taxable Income Calculation

Let’s say a company has the following data for the year:

Item	Amount (AED)
Net Profit (before tax)	800,000
Add: Non-deductible entertainment	30,000
Add: Personal expenses (disallowed)	20,000
Less: Dividend income (exempt)	(100,000)
Less: Foreign branch income (exempt)	(50,000)

Taxable Income = 800,000 + 30,000 + 20,000 – 100,000 – 50,000 = AED 700,000

Corporate Tax Payable

• 0% on AED 375,000 = AED 0
• 9% on AED 325,000 = AED 29,250

Common Adjustments You Should Know

Adjustment Type	Examples	Treatment
Disallowed expenses	Fines, donations to unapproved bodies	Add back to profit
Unrealized gains/losses	FX differences, revaluations	May be adjusted based on FTA rules
Related party transactions	Excessive salaries to connected persons	Must meet arm’s length principle
Exempt income	Dividends, capital gains, Free Zone qualifying income	Deduct from net profit

Record-Keeping Requirement:

To support your taxable income calculations, you must:

• Maintain financial records for 7 years
• Keep supporting documentation for all adjustments and exemptions claimed
• Ensure audit trail is clear and consistent with IFRS or other accepted standards

What If You Miscalculate?

Incorrect taxable income can result in:

• Penalties from the FTA
• Delays in refunds or audits
• Reputational damage or loss of Free Zone incentives

It’s highly recommended to work with a tax consultant to ensure accuracy and compliance.

Final Thoughts:

Calculating corporate taxable income isn’t just about subtracting costs from revenue — it requires a full understanding of tax adjustments, exemptions, and disallowed items. Doing it right helps you avoid penalties and ensures you’re only paying what’s legally required.

Need Help With Your Tax Calculations?

Our experts at Think Biz Management Consultancies offer:

• Corporate tax return preparation
• Financial statement analysis
• Customized advisory on deductions and exemptions

Contact us today to ensure full compliance with UAE Corporate Tax law.

 

Contact us today for a free consultation.

Contact number: ‪+971 50 983 0334‬

Email ID: info@alphabets.ae