Corporate Tax Calculation UAE – Complete Guide for Businesses
The introduction of Corporate Tax Calculation UAE has reshaped how companies operate across the Emirates. From 1 June 2023, the UAE implemented a federal corporate tax system at a standard rate of 9%. While the law aims to align with international tax standards, many business owners still struggle to understand how to calculate their corporate tax accurately.
Whether you run a mainland company, a Free Zone entity, or a foreign branch, knowing the correct Corporate Tax Calculation UAE method helps you avoid penalties, stay compliant, and protect your business profits.
What Is Corporate Tax in the UAE?
Corporate tax is a direct tax imposed on the net profits of companies operating within the UAE. It applies to all legal entities and individuals engaged in business activities under a commercial license.
The current Corporate Tax Calculation UAE framework defines taxable income as the accounting profit (net profit or loss) shown in financial statements, after making specific adjustments as per the UAE Corporate Tax Law.
Who Is Subject to Corporate Tax?
Corporate tax in the UAE applies to:
Mainland companies registered under UAE law
Free Zone companies earning non-qualifying income
Foreign entities with a permanent establishment in the UAE
Individuals conducting business under a license
However, government entities, qualifying public benefit entities, and small businesses under the Small Business Relief Scheme may be exempt from tax.
Corporate Tax Rates in the UAE
Understanding the tax rates is the foundation of Corporate Tax Calculation UAE:
0% on taxable income up to AED 375,000
9% on taxable income exceeding AED 375,000
0% (subject to conditions) for qualifying Free Zone persons earning qualifying income
Foreign companies operating in the UAE may have separate rules based on double taxation treaties and residency criteria.
Step-by-Step: How to Calculate Corporate Tax in UAE
Here’s how businesses can perform Corporate Tax Calculation UAE correctly:
1. Determine Accounting Profit
Start with your net profit as shown in your audited financial statements prepared under International Financial Reporting Standards (IFRS).
2. Adjust for Non-Deductible Expenses & Exempt Income
Add back non-deductible expenses (like fines, penalties, and donations to unapproved entities) and subtract exempt income (such as dividends from qualifying shareholdings).
3. Identify Qualifying Deductions
Include all allowable deductions such as operating expenses, employee salaries, and depreciation as per the UAE’s corporate tax guidelines.
4. Calculate Taxable Income
Taxable Income = Adjusted Accounting Profit – Qualifying Deductions
5. Apply the Tax Rate
If your taxable income is below AED 375,000, the tax rate is 0%.
If it’s above AED 375,000, apply the 9% corporate tax rate.
Example:
If your adjusted profit is AED 800,000:
AED 375,000 × 0% = AED 0
AED 425,000 × 9% = AED 38,250 corporate tax payable
That’s the essence of Corporate Tax Calculation UAE in practice.
Special Considerations for Free Zone Companies
Free Zone entities are eligible for 0% tax only if they meet all qualifying criteria:
Maintain adequate economic substance in the UAE
Earn qualifying income from permitted activities
Do not conduct business with the UAE mainland (except under specific rules)
Failing to meet these requirements means losing the 0% rate and paying 9% tax.
Therefore, even Free Zone companies must perform proper Corporate Tax Calculation UAE every financial year.
When and How to File Corporate Tax Returns
Registration: All taxable persons must register for corporate tax with the Federal Tax Authority (FTA).
Filing: Annual corporate tax returns must be filed within 9 months from the end of the financial year.
Payment: The tax must be paid before or on the return filing deadline.
Timely and accurate Corporate Tax Calculation UAE ensures smooth compliance and avoids administrative penalties.
Penalties for Incorrect Corporate Tax Calculation
Failing to register, file, or pay corporate tax correctly can lead to:
Heavy financial penalties
Audit scrutiny
Loss of Free Zone tax benefits