The Mathematical Framework of Corporate Fiscal Liability Assessment

United Arab Emirates (UAE) has enacted a Corporate Tax Law that may have vast consequences for businesses operating within the country. According to the UAE’s Corporate Tax Law, taxable income up to AED 375,000 is subject to 0% corporate tax, and taxable income exceeding AED 375,000 is subject to 9% tax. This article seeks to help the organization come up with a corporate tax calculation guide for determining the corporate tax payable under the corporate tax law.

The Sequential Phases of Adjusted Net Income Evaluation

Under the UAE Corporate Tax Law, the following types of income are subject to UAE corporate tax for the specified entities and individuals:

1. Businesses and individuals conducting activities under a commercial license in the UAE:

• Income from sales of goods and services
• Income from investments, including interest, dividends, and capital gains
• Income from rental properties and other real estate activities
• Income from any other business activities conducted in the UAE

For a detailed impact of tax laws on businesses, read more here: Impact of UAE Corporate Tax on Businesses and Tax Evasion.

2. Free zone businesses that comply with all regulatory requirements and meet the conditions to be treated as Qualifying Free Zone Persons:

• Income derived from qualifying activities conducted within the designated free zone area
• Income from transactions with mainland UAE businesses provided that the free zone business meets the conditions for maintaining its tax incentives

Discover more about the free zone conditions and exemptions here: Qualifying Activities and Excluded Activities for Free Zones.

3. Foreign entities and individuals conducting a trade or business in the UAE in an ongoing or regular manner:

• Income derived from activities carried out through a permanent establishment in the UAE
• Income from providing services or performing contracts within the UAE
• Income from the sale of goods and services to customers in the UAE

For more details about the taxation of foreign entities, check this guide: Corporate Tax for Foreign Companies in the UAE.

4. Banking operations:

• Income from interest, fees, commissions, and other banking-related activities
• Income from investments, including interest, dividends, and capital gains
• Income from foreign exchange transactions and other financial services

5. Businesses engaged in real estate management, construction, development, agency, and brokerage activities:

• Income from the sale, lease, or rental of real estate properties
• Income from real estate development, construction, and management services
• Income from agency and brokerage fees related to real estate transactions

Explore how real estate-related activities are taxed under the UAE corporate tax regime here: Real Estate Sector and Corporate Tax.

Allowable Deductions

For purposes of computing Taxable Income any reasonable business expense, incurred wholly and exclusively for the purpose of earning Taxable Income can be deducted. Some of the allowable deductions are as follows;

• Salaries and wages
• Rent and utilities
• Depreciation and amortization expenses
• Net interest expenditure, subject to the applicable interest deduction limitation rules.
• Entertainment of clients, 50 percent tax deductible where the relevant conditions are met.

For a deeper understanding of deductible and non-deductible expenses, check out this guide: Deductible and Non-Deductible Expenses for Corporate Tax in UAE.

Nevertheless, certain costs are not allowable for the corporate tax computation, including;

• Bribes
• Fines and penalties (exclusive of compensations for loss or breach of contract)
• Donations, grant, or gift made to a non-qualifying public benefit organization
• Cash and/or other distributions of dividends and other profits.

The Progressive Slab Application Rules

The UAE Corporate Tax Law outlines the headline tax rate of 9% for taxable income greater than AED 375,000. However, there are specific categories of income whose corporate tax liability is different from the rest of the income. For example:

• Income from natural resource extraction and related activities may remain subject to Emirate-level taxation where the relevant conditions apply.
• Certain income from participating interests may be exempt from corporate tax where the required conditions are met.
• Any income arising from business and commercial activities in the free zones may not be subject to corporate tax under some circumstances.

Table 1: UAE Corporate Tax Rates

Tax payment process

1. Register for corporate tax: Taxable Persons, including UAE resident companies, certain non-resident persons, and free zone entities, may be required to register for corporate tax and obtain a Corporate Tax Registration Number.
2. Maintain records and documentation: Every person who is subject to taxes is required to retain the records and documents for a period of not less than seven taxation years after the close of the particular taxing period.
3. File annual corporate tax returns: Every person who is liable to pay Corporation Tax has to complete and file yearly tax returns no later than nine months after the end of the period of account.

Operational Compliance Support

To manage your net accounting adjustments safely, scheduling a corporate tax compliance review and evaluation with certified professionals can streamline your framework. Our team protects your business from penalties by verifying deduction opportunities.

FAQs

Mostafa Mansour

Meet Mostafa on Corporate Tax UAE. A seasoned consultant with 5+ years of expertise in FTA dispute settlements, tax advisory, and regulatory negotiations.