In the changing business landscape of the UAE, understanding the importance of corporate taxation is essential for both local companies and international companies operating within its borders. With a tax system known for its business-friendly environment, understanding how corporate tax is calculated in the UAE is essential. Unlike many other jurisdictions, the UAE does not impose a federal corporate income tax on most businesses. Instead, the country operates under a system where corporate tax (CT) is administered primarily at the emirate level. Each emirate has its own rules and policies regarding taxation.
UAE Corporate Tax Rate?
CT in the UAE is calculated at 9% of the net profit shown in the company’s financial statements, after deducting all applicable deductions and excluding exempt income. Any foreign tax paid is allowed to be deducted from the profit shown in the financial statement.
- CT in the UAE is levied on the annual taxable income of a business.
- The CT rate is 0% for taxable income not exceeding AED 375,000.
- The UAE corporate tax rate is 9% for taxable income above AED 375,000.
How Corporate Tax is Calculated in UAE?
Let’s examine the method of how corporate tax is calculated in the UAE using the table provided below.
Income
Gross Amount of any sales or services derived by a Taxable person during a Tax Period
- Income derived by a Resident Person from the business or business Activity are subject to CT regardless of Income in UAE or abroad in accordance with the provisions of CT Law.
- Natural persons Income from the business or business Activity conducted in UAE.
- Income generated by a branch of a Foreign Company in UAE.
- Income from the provision of Services that are rendered or utilize or benefitted from /in the state.
- Income from movable or immovable property.
- Income from the disposal of Assets or Capital.
- Income from IP or Intangible Assets.
Exempted Income
The following income and related expenditure shall not be taken into account in determining the Taxable Income
- Dividends and other profit distributions from both domestic and foreign participation by a Resident Person
- Income from Participating Interest (subject to following conditions)
- A Participating Interest means, a 5% or greater ownership interest in the shares or capital of a juridical person.
- The taxable person should hold the above shares for at least 12 months.
- Participation is subject to CT, or any other tax imposed under the applicable legislation of the country or territory in which the juridical person is resident.
Cost of Sales
All legitimate business expenses incurred wholly and exclusively for the purposes of deriving Taxable Income will be deductible including purchases, Labor Charges, Hire Charges, Sub Contractors etc., Expenditure related to the exempted income should not be part of cost of sale.
General and Admin Expenses
- Expenditure incurred wholly and exclusively for the purposes of the Taxable Person’s Business that is not capital in nature shall be deductible in the Tax Period in which it is incurred.
- Expenditure that has a dual purpose, such as expenses incurred for both personal and business purposes, will need to be apportioned with the relevant portion of the expenditure treated as deductible if incurred wholly and exclusively for the purpose of the taxable person’s business.
- Salaries to staff
- Rent / License fee
- Legal expenses
- Professional fee
- Salaries to directors within the market value
- All other admin expenses related to the said business activity excluding expenses incurred for Exempt Income
Financial Charges
- Bank charges (including guarantee charges L/C facility, etc).
- Interest Expenditure
- A Taxable Person’s Net Interest Expenditure shall be deductible up to 30% of the Taxable Person’s accounting earnings before the deduction of interest, tax, depreciation and amortization (EBITDA) for the relevant Tax Period, excluding any Exempt Income.
- Balance Net Interest Expenditure from the above may be carried forward and deducted in the subsequent ten (10) Tax Periods in the order in which the amount was incurred.
Depreciation / Amortization
A Taxable Person that prepares financial statements on an accrual basis can depreciate / Amortize under applicable accounting standards for its property, plant and equipment, investment property, intangible assets or other non-current assets.
Unrealized Gain or Loss
- A Taxable Person that prepares financial statements on an accrual basis may elect to take into account gains and losses on a realization basis in relation to.
- All assets and liabilities that are subject to fair value or impairment accounting under the applicable accounting standards.
- All assets and liabilities that are eligible for depreciation or Amortization or impairment of its property, plant and equipment, investment property, intangible assets, or other non-current assets at the end of that period.
- An “unrealized gain or loss” includes an unrealized foreign exchange gain or loss.
Un-deductible Expenditure
Certain expenses which are deductible under general accounting rules may not be fully deductible for CT purposes. These will need to be added back to the Accounting Income for the purposes of determining the Taxable Income. Examples of expenditure that is or may not be deductible (partially or in full) include:
How Can Maxims Help?
Maxims offers complete assistance with corporate tax registration, filing, payments and ongoing support in the UAE. Our dedicated team of tax experts, well versed in UAE tax laws, ensure smooth and legal business transactions. We also offer customized consulting services to address specific tax concerns or challenges faced by businesses. During a tax audit or investigation, we stand by our clients, providing support and representation throughout the process.
