how corporate tax is calculated in UAE?

Applying UAE regulations to the calculation process determines corporation tax. 9% Profits from selling goods or services, incentives, interests, investment income, and rentals are the various components that make up a company's taxable income. To compute the appropriate taxable income, subtract legally permissible deductions and exemptions from the profits

Formula to Calculate Corporation Tax UAE   

To calculate the corporation tax, the company must determine its taxable income. The Federal Tax Authority uses the following formula to derive the amount of corporation tax due.

Corporation tax rate x Taxable income = Corporation tax due    

The taxable income equals the adjusted gross income minus all the applicable deductions.   

1. Obtain the company's Adjusted Gross Income by subtracting the appropriate adjustments from the gross income. Gross Income encompasses earnings from sales, interest, commission, rent, and various other sources. Early withdrawal penalties, staff expenses, operating expenses, and all other company expenditures are included in the applicable adjustments.   
2. The UAE tax authority permits itemized deductions, but failing to claim them means the taxpayer won't receive any deduction.

How to Calculate UAE Corporation Tax    

Companies in the UAE calculate their corporate tax at 9% of the net profit shown in their financial statements. After deducting all applicable expenses and excluding income exempted from taxation, they perform this process.

Let's go over the fundamental stages involved in calculating a company's corporation tax:   

Step 1: To calculate the amount of income that is subject to UAE corporation tax, you must first determine your adjusted gross income as well as the deductions that are permitted by the tax authority.   

Step 2: Apply the following formula to get the taxable income: Income subject to taxation = Adjusted gross income - Allowed deductions.

Step 3: The last step in how calculating the corporation tax liability of a UAE company: multiply the tax rate by the amount of income that is subject to taxation.

You should Read:

Corporate Tax Compliance Requirements in UAE

Example:   

During the current fiscal year, ABC Corporation has realized AED 500,000 net profit from its operations. The corporation can take deductions of up to AED 100,000. The corporation tax rate that applies to the business is 9% Now, determine ABC Corp.'s corporation tax liability.   

Solution:   

Taxable Income multiplied by the applicable tax rate results in the corporate tax due of ABC Corporation.   

To calculate income subject to taxation, subtract all allowable deductions from the adjusted gross income.

So,    

Taxable Income: AED 400,000 = AED 500,000 minus AED 100,000 

Corporation Tax: AED 36,000 = AED 400,000 x 9% standard corporation tax rate   

Thus, ABC Corporation is liable for AED 36,000 as corporation tax in UAE.    

How to Reduce Corporation Tax Legally in UAE    

Businesses that engage in tax planning have the legal ability to lessen their taxable income. Tax planning alternatives, which should not be confused with illegal or unethical ways e.g. tax evasion, are permissible. They allow businesses in the UAE to steer clear of paying excessive amounts of tax but this will entail planning with the help of corporate tax accountants in UAE.  

Chartered accountants in the UAE can reduce their clients' tax liabilities by making use of a variety of tax deductions, refunds, and exemptions that have been authorized by the UAE Federal Tax Authority. These experts have a comprehensive understanding of the laws governing taxes, as well as tax administration and financial planning.   

Read also - Deductible & Non-Deductible expenses under corporate Tax in the UAE

Advantages of Corporation Tax in UAE   

The aphorism that "when businesses prosper, the country's economy grows" is something that all of us have heard. But how exactly does this process work? The answer lies in corporation tax.   

The benefits of corporation tax in the UAE are as follows:   

• Unbiased and impartial taxation: corporation tax is collected from registered businesses that meet the criteria set by the authorities under UAE Corporate Tax law in an equitable way, regardless of the industry.  
• Increased government revenue: corporation taxes bring in a significant amount of money for the government to fund all public services including infrastructure, national defense, and public transportation. They are all dependent on the money that the government generates from the imposition of taxes.  

• Deductions on tax liability: Businesses can deduct the cost of employee medical insurance, wages, and other employee expenses from their taxable income. In addition, the user might subtract losses and bad debts from the total taxable amount.

If you run a company in the United Arab Emirates, you are obligated to make tax payments. The UAE Federal Tax Authority will not send you a charge for the amount that is owed by your business for corporation tax. You're responsible for determining, reporting, and paying the company's tax liability. Should you fail to do so, the consequences of your company's failure to pay its taxes on time can be severe. Talk to the corporate tax accountants of Corporate Tax UAE today to help ensure compliance with UAE tax legislation!  

Sources: 

https://www.mof.gov.ae