Corporate tax is still new for many businesses. However, now it is a permanent part of the UAE business environment. Starting June 2023, companies across Dubai must calculate their taxable income and file corporate tax returns. Whether you are running a small startup, a Free Zone company, or a multinational, knowing the rules of taxable income under UAE corporate tax law is important.
Wondering how to calculate taxable income under the UAE corporate tax law? No worries; this guide will help and explain in simple terms what taxable income is, How it is calculated, the common adjustments you need to make, and how Free Zone Persons (FZPs) are treated.
We will also show you how to use loss relief, exemptions, and deductions while staying compliant with the law. If you are worried about making mistakes. You can always reach out to tax experts like Bestax for professional support.
What Is Taxable Income in the UAE
Taxable income is the profit subject to UAE corporate tax. However, it may not be the same as the profit shown in your financial statements. The starting point is always the net profit or loss from the financial statements prepared under International Financial Reporting Standards(IFRS).
In simple words:
Taxable Income = Accounting Profit + Adjustments – Exempt Income – Reliefs
From there, businesses must:
- Add back non-deductible expenses.
- Subtract exempt income.
- Apply special reliefs, such as tax loss carryforwards.
The final number is what we call taxable income. This is the figure used to calculate your UAE corporate tax liability.
For example:
- If your accounting profit is AED 2,000,000
- Add back AED 200,000 of non-deductible expenses
- Subtract AED 100,000 of exempt income
Your taxable income is AED 2,100,000.
UAE Corporate Tax Rates
It’s designed to support fair business practices. Keeping the country attractive to investors. According to UAE corporate tax rules:
- 0% on the first AED 375,000 of taxable income.
- 9% on taxable income above AED 375,000.
- 0% for Small Business Relief (if annual revenue is up to AED 3 million, companies may claim relief until 2026).
- OECD Pillar Two rules apply to multinationals with consolidated revenues above EUR 750 million.
This means most small and medium companies will only pay 9% corporate tax. On their taxable income above AED 375,000.
Other useful points:
- All businesses, including free zone companies, fall under these rules. Free zone companies may qualify for 0% on qualifying income if certain conditions are met.
- Even if your taxable income ends up under AED 375,000 (so your rate is 0%), you still must file a return
Adjustments to Accounting Income
To calculate taxable income, you cannot just take the net profit from your books. The law requires you to adjust it. Common adjustments include:
1. Non-Deductible Expenses
There are some expenses that cannot be deducted for tax purposes. You must add it back to accounting income. For example,
- Penalties and fines.
- Donations not made to approved charities.
- Dividends paid to shareholders.
- Unrealized gains and losses are generally excluded, except under specific conditions.
2. Exempt Income
Moreover, some income is completely tax-free. Businesses must subtract this from accounting income. Examples include:
- Dividends from UAE or foreign subsidiaries (if conditions are met).
- Profits from foreign permanent establishments.
- Income from certain Free Zone activities.
3. Interest Deduction Limitation
The UAE corporate tax law limits interest expense deductions to 30% of EBITDA. (Earnings Before Interest, Tax, Depreciation, and Amortisation). This helps to prevent companies from lowering taxable income too much by charging excessive interest.
For a full overview of registration and compliance, you can check Corporate Tax Registration Services in the UAE.
Start With Accounting Income
Your first step is to look at the audited financial statement that is prepared under IFRS. The total net profit or loss.
Example:
- Your company reports a net profit of AED 1,500,000 in its books.
- This is the base number before adjustments.
Tax Loss Relief and Carryforward
Businesses can carry forward tax losses to reduce future taxable income. That means if your business makes a profit or loss, you don’t lose the benefit. The loss can only be carried forward if there are no major changes in the ownership. Loss relief cannot exceed 75% of taxable income in a year.
Example:
- In 2024, your company had a tax loss of AED 500,000.
- In 2025, your taxable income is AED 1,200,000.
Free Zone Rules
Free Zone Persons (FZPs) enjoy special rules under Ministerial Decision No. 229 of 2025 and No. 230 of 2025. Under UAE tax law, the free zone persons are treated differently. for example
- If your free zone company earn qualifying income, you can enjoy 0% tax
- However, if the company earns non-qualifying income, it is taxed at 9%
- De minimis rule: If non-qualifying income is ≤ 5% of revenue (or AED 5m, whichever is lower), FZPs still enjoy 0% status.
Qualifying activities include:
- Manufacturing.
- Holding shares.
- Commodity trading (under strict rules).
- Reinsurance and shipping.
Step-by-Step Guide to Calculate Taxable Income in the UAE
Here’s a simple formula you can follow:
- Start with Net Profit (from IFRS accounts).
- Add back Non-Deductible Expenses.
- Subtract Exempt Income.
- Apply Interest Deduction Limits.
- Adjust for Transfer Pricing if applicable.
- Apply Tax Loss Relief if available.
- The result = Taxable Income.
Apply a 0% or 9% tax rate based on thresholds.
Ministerial Decisions and Guidance
The UAE Ministry of Finance issues decisions to clarify tax rules.
- Ministerial Decision 229 of 2025 defines free zone qualifying activities.
- Ministerial Decision 230 of 2025 sets out recognized price reporting agencies and commodity trading rules.
Need Expert Guidance on UAE Corporate Tax?
Calculating taxable income under the UAE corporate tax law can be a complex process. Missteps in adjustments, exemptions, or free zone rules may result in costly penalties.
That’s where Bestax Accounting services comes in. We help businesses across Dubai and the UAE with:
- Corporate tax registration
- Taxable income calculation
- Free zone compliance
- Filing annual tax returns
Let the experts at Bestax guide you through corporate tax with confidence.
Quick FAQs
1. What is the starting point for calculating taxable income in the UAE?
For calculating taxable income in the UAE, you can begin with net profit in IFRS-based financial statements.
2. How do adjustments affect taxable income?
They correct accounting income by adding back non-deductible expenses and removing exempt income.
3. What are common non-deductible expenses?
Penalties, fines, and donations to non-approved bodies are common non-deductible expenses.
4. Can tax losses be carried forward?
Yes, they can be carried forward indefinitely and offset up to 75% of taxable income.
5. How is corporate tax calculated in the UAE?
Apply 0% up to AED 375k, 9% on income above that, with 15% for certain multinationals.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
