UAE has implemented Corporate Tax in June 2023 with a standard rate of 9% applicable on business entities having taxable income over AED 375,000. The following article aims to elaborate on how the UAE computes corporate tax for companies.
Corporate Tax Calculation UAE
When calculating the amount of corporate tax payable from the calculator then the first step is calculating the taxable profits of the company. Taxable income can be different from accounting income as reported in the income statement due to several adjustments.
Some key points to note in determining taxable profits are:
- Begin with the net of tax profit as per the financial statement by IFRS or other accounting standards.
- Deduct from the gross tax figure any allowable deductions such as interest on loans, depreciation, and entertainment expenses that are more than a given threshold.
- Subtract any exempt income such as the profit from foreign branches.
- Explain how provisions, depreciation, amortization, and inventory valuation methods are reflected by the tax rules.
- Take into account any available net operating loss carried forward will affect the calculations.
Corporate tax Computation UAE
Once the taxable profit is determined then UAE corporate tax rates and calculations are applied to determine the amount of tax that the firm is required to pay.
- The UAE corporate tax rate is computed at a flat 9% on each company’s taxable profits provided such profits exceed AED 375,000.
- Companies earning up to AED 375,000 are exempt from tax and they are thus imposed with a 0% tax rate.
Table: Methods of corporate tax calculation in UAE
| Company | Taxable Profits (AED) | Tax Calculation | Tax Payable (AED) |
|---|---|---|---|
| Company A | 300,000 | Profits below threshold of AED 375,000. Tax rate is 0% | 0 |
| Company B | 500,000 | Profits above threshold. Taxable amount = 500,000 - 375,000 = 125,000. Tax rate is 9% on taxable amount | 125,000 x 9% = 11,250 |
| Company C | 1,000,000 | Profits above threshold. Taxable amount = 1,000,000 - 375,000 = 625,000. Tax rate is 9% on taxable amount | 625,000 x 9% = 56,250 |
| Large MNC | 200,000,000 | Tax rate is 9% on first AED 375,000 Tax rate is 15% on excess over AED 150 million. Taxable amount = 200,000,000 - 375,000 - 150,000,000 = 49,625,000 | 375,000 x 9% = 3,375 + 49,625,000 x 15% = 7,443,750 Total tax = 7,443,750 + 3,375 = 7,447,125 |
Read more: How Can a Tax Consultant Help Your Corporate Tax Preparation in UAE?
Other Factors Affecting Tax Calculations
In addition to taxable profits and rates, there are few other points to consider: In addition to taxable profits and rates, there are few other points to consider:
- Subtract any investment tax credits available, if any
- Explain withholding tax where applicable for instance on interest, royalties, etc.
- Whenever possible, review any tax benefits including exemptions or incentives that are provided by the free zones or sectors.
- Consider bilateral tax treaties for elimination of double taxation
For the right computation and discharge of corporate tax liabilities, companies can consult licensed tax agents in UAE.
FAQs
Q1. Is there a minimum threshold for corporate tax applicability in UAE?
A1. Yes, Corporate tax is paid only and solely on the taxable income which is more than AED 375,000 in a financial year. Earnings up to this limit are not subject to tax and the taxes charged are at their lowest level of 0%.
Q2. Can losses be carried forward to reduce future taxes?
A2. Yes, tax losses can be carried forward for up to 5 years to offset profits and relieve corporate tax in the following fiscal years.
Q3. Is there any corporate tax exemption period for new businesses?
A3. For now there is no special period where companies can seek an exemption from the rules. From June 2023, it is mandatory for those companies who have taxable profit more than AED 375,000, to pay the corporate tax at the rate of 9%. Whereby oil and gas, federal and local governments are some of the key sectors that might get some exemptions under certain conditions.
Q4. How often should corporate tax returns be filed?
A4. Corporate tax returns will need to be filed annually within 4 months from the end of the financial year along with payment of any tax due. Large businesses will need to file quarterly advance payments as well.
Seek the Expert Services of Top Tax Consultants in UAE
For corporate tax calculation in the UAE, it is essential to understand that determining the taxable amount involves computing the taxable profit. This profit is derived from the accounting profit, with necessary adjustments for exemptions and non-deductions. Additionally, companies must maintain accurate records to support their calculations and ensure compliance with tax regulations. Therefore, it is important for businesses to seek guidance from corporate tax consultants in the UAE to fully understand the methods of corporate tax calculation and ensure adherence to UAE laws.