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How is corporate tax calculated in UAE?

The UAE corporate tax was introduced by virtue of Federal Decree Law No. (47) of 2022. UAE corporate tax is a form of direct tax imposed on taxable income that exceeds the amount of 375,000 at the rate of 9%. Thus, taxable persons are advised to seek the expert services of Tax Consultant UAE to seamlessly calculate due corporate tax and to stay compliant with tax standards.  

How to calculate corporate tax in UAE?

The UAE corporate tax is calculated as per the following rates:

  • 0% if the taxable income does not exceed AED 375,000.
  • 9% if the income exceeds the above-mentioned amount, which is 375,000 AED.

Qualifying free zone persons are exempted for corporate tax purposes. A different tax rate with regard to large multinational companies that meet a specific criterion is to be set according to the second pillar of the OECD Project on Erosion of the Tax Base and Transfer of Profits.

Income subject to corporate tax

Corporate tax is imposed on the taxable income that the taxable person achieves in a tax period.

How to calculate the taxable income? 

Taxable income is calculated in accordance with the general rules for determining taxable income. Whereas, according to these rules, the taxable income is determined for each taxable person separately, according to independent financial statements that are prepared for the purposes of preparing financial reports in accordance with the accepted accounting standards.

1. Accounting income for the tax period

The accounting income represents the starting point for calculating the taxable income, i.e. the net profit or loss before tax. Accordingly, the taxable person must make certain adjustments to determine his taxable income for the tax period. These adjustments may include any of the following:

  • Unrealized gains and losses.
  • Facilities.
  • Discounts.
  • Transactions with related persons and related parties are stipulated in Chapter Ten of this Decree-Law.
  • Tax loss facilities.
  • Facilities and incentives for qualified business activity.
  • Income or expenses that are not taken into account in calculating taxable income.
  • Expenses deductible from income

Further, there is a distinction between expenses in which a deduction is not permissible, expenses in which a 50% deduction is permissible, and expenses in which a deduction of more than 30% is not permissible.

Read more: How Can a Tax Consultant Help Your Corporate Tax Preparation in UAE?

2. Expenses that may not be deducted from

  • Bribery or other illegal payments.
  • Fines and financial penalties.
  • Donations, gifts, or grants to a non-public benefit entity are eligible.
  • Dividends or shares.
  • The corporate tax is imposed on the taxable person.
  • Expenses incurred by a person to generate income that is exempt from corporate tax.
  • Expenses for which a partial deduction is permissible
  • This is 50% in respect of customer entertainment expenses.

3. Expenses that may not be deducted by more than 30%

These include the following:

  • Interest expense.
  • Calculating corporate tax due.

All amounts payable are calculated in UAE dirhams, hence, this requires all amounts estimated in another currency to be converted according to the exchange rate determined by the Central Bank of the United Arab Emirates, taking into account any conditions that may be issued by the Federal Tax Authority in this regard.

Corporate tax deductible on income generated in the UAE

The income categories generated in the state and achieved by a non-resident person are subject to the tax withheld at source at a rate of 0%. This payable tax shall be deducted from the total amount of the payment and shall be paid to the Authority according to the forms and within the period specified by the Authority.

With the application of this tax, no withholding tax will be due and, accordingly, there will be no obligations regarding registration and filing of tax returns in relation to the withholding tax at source for businesses residing in the country or foreigners who receive income arising in it, and this tax is not applied to transactions among persons residing in the country.

Balance of tax withheld at source

It is the amount of corporate tax that can be deducted from the corporate tax due so that the maximum balance of this balance is less than the amount of tax withheld at source and less than the amount of corporate tax due under this law.

Foreign tax balance

It is the tax that is paid on income or profits under the applicable legislation in another country or foreign territory so that this balance is deductible from the due corporate tax in the following cases:

The corporate tax payable may be reduced by the amount of the foreign tax credit for the relevant tax period.

The amount of the foreign tax balance does not exceed the amount of corporate tax due for the relevant income. It is not permissible to transfer the foreign tax balance if it exceeds the amount of the tax due, to previous or subsequent tax periods. The taxable person must maintain all necessary records for the purposes of claiming the foreign tax credit.

Seek the services of UAE tax consultants 

Tax Consultants Dubai assists taxable persons to seamlessly calculate the due corporate tax and to stay compliant with tax regulations and standards. Thus, contact us today and we shall be glad to assist you.

Mohammad Alkhatim

Mohammad is a qualified Legal Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mohammad has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities.

Mostafa is a qualified Corporate Tax Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mostafa has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities. Read more