What Is Taxable Income in UAE Corporate Tax? Full Breakdown for Businesses
With the introduction of the UAE Corporate Tax regime, understanding what counts as Taxable Income in UAE Corporate Tax has become essential for every business operating in the Emirates. Whether you run a mainland company, a free zone entity, or an international branch, your tax obligations depend entirely on how the Federal Tax Authority (FTA) defines your Taxable Income in UAE Corporate Tax.
This guide breaks down the concept in simple, practical terms — helping you understand what is included in your taxable base, what income may be exempt, how Taxable Income in UAE Corporate Tax is calculated, and how your business can stay compliant while optimizing its overall tax position. By knowing exactly how Taxable Income in UAE Corporate Tax works, companies can make informed financial decisions and avoid costly mistakes under the new corporate tax framework.
1. What Is Taxable Income Under UAE Corporate Tax?
Taxable income refers to the net profit of a business after adjusting for exemptions, deductions, and non-deductible expenses as per the UAE Corporate Tax Law.
The starting point is your accounting profit (prepared according to IFRS).
The FTA then makes adjustments to determine your final Taxable Income UAE Corporate Tax.
These adjustments include:
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Removing exempt income
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Adding back non-deductible expenses
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Subtracting allowable deductions
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Including taxable capital gains
This ensures the taxable amount reflects real economic profit.
2. Income That Is Included in Taxable Income
The following categories form part of your Taxable Income UAE Corporate Tax:
a) Revenue from Core Business Activities
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Sale of goods
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Fees from services
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Consultancy and professional income
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Contracting and operational revenue
b) Other Revenue Streams
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Commission income
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Commercial rental income
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Management fees
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Interest income (if not exempt)
c) Capital Gains
Profits earned from the sale of:
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Business assets
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Commercial properties
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Shares (if exemption does not apply)
These gains add to your taxable income.
3. Income Exempt from Taxable Income
Some income types are legally exempt from corporate tax and do not form part of Taxable Income UAE Corporate Tax.
a) Dividend Income
Dividends received from:
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UAE resident companies
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Foreign companies (meeting conditions under participation exemption)
b) Gains on Qualifying Share Disposals
Profits from selling shares in qualifying entities are exempt.
c) Foreign Permanent Establishment (PE) Income
A business can elect to exclude income from a foreign branch.
d) Free Zone Qualifying Income
If a Free Zone Person meets the conditions, qualifying income may be taxed at 0%, while non-qualifying income is taxed at 9%.
4. Deductible Expenses That Reduce Taxable Income
Allowable expenses help businesses legally reduce their Taxable Income UAE Corporate Tax.
You can deduct expenses that are:
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Wholly and exclusively for the business
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Properly documented
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Not capital or personal in nature
Common Deductible Expenses Include:
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Employee salaries and benefits
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Office rent, utilities, and admin costs
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Advertising and marketing expenses
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Professional service fees
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Depreciation of assets
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Business travel & training
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Repairs and maintenance
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Cost of goods sold (COGS)
These reduce your taxable income and help minimize your tax liability.
5. Non-Deductible Expenses
The following costs cannot be claimed as deductions:
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Fines and penalties
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Personal or non-business expenses
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Donations to non-approved charities
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Dividends and profit distributions
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Excessive business entertainment
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Capital expenditure that isn’t depreciated
These must be added back when calculating Taxable Income UAE Corporate Tax.
6. How to Calculate Taxable Income (Simple Formula)
Here’s the basic formula used to calculate your taxable income under UAE Corporate Tax:
**Accounting Profit
➖ Exempt Income
➕ Non-Deductible Expenses
➖ Allowable Deductions
= Taxable Income UAE Corporate Tax**
This final figure is then taxed at 9% (or 0% for qualifying free zone income).
7. Why Understanding Taxable Income Matters
A clear understanding of Taxable Income UAE Corporate Tax is crucial because it helps your business:
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File accurate tax returns
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Avoid FTA penalties or audits
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Claim all eligible deductions
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Reduce tax liability legally
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Plan annual financial strategies effectively