Corporate Tax Calculation in UAE?

Corporate Tax in UAE

In January 2022, the Ministry of Finance in UAE announced that it will introduce Corporate Tax on the profits of businesses or companies, which will be applicable on 1st July 2023 and will be applied across all the emirates.

Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business.

Corporate Tax Calculation in UAE

In the UAE, corporate tax is computed at 9% of the net profit reported in the company’s financial statements after considering – all applicable deductions and excluding exempt income. Additionally, any foreign taxes paid will be deducted from the profit reported on the financial statement.

After all deductions, the net profit is taxable income. Only in cases where the taxable value exceeds AED 375,000, 9% corporate tax will be applied.

Let’s look at how corporate tax will be calculated in UAE:

Details Amount
Net Profit (a) XXXXXXX
Less: All deduction (b) XXXX
Net Income (c) XXXXXXX
Less: Exempt Amount (d) 375,000
Taxable Income (e) XXXXX
Corporate Tax @9% on (e) XXX

Example of Corporate Tax

XYZ LLP, a business based in Dhabi, United Arab Emirates, released its 2021 annual financial statements. The company/business reported a net profit of AED 500,000. Additionally, they are qualified for deductions of AED 25,000 The government has not yet released information on the types of deductions allowed for company tax deductions.

Details Amount
Net Profit (a) 500,000
Less: All deduction (b) 25,000
Net Income (c) 475,000
Less: Exempt Amount (d) 375,000
Taxable Income (e) 100,000
Corporate Tax @9% on (e) 9000

As shown in the above example table, the net profit from the financial statement is first lowered by deductions allowed by the corporate regulations. Later, AED 375,000 exemption amount is decreased to decide the taxable income. Therefore, XYZ LLP will have to pay 9000 AED (AED 100,000 @ 9%) in corporation tax.

Read more about Corporate Tax

What is Corporate Tax in Dubai? | Objective & Scope of Corporate Tax in Dubai