Corporate Tax Calculation in UAE?

Corporate Tax in the UAE: Understanding Calculation and Examples

In January 2022, the Ministry of Finance in the UAE announced the introduction of Corporate Tax on business profits, effective from July 1, 2023, across all emirates.

Definition and Calculation:

Corporate tax is a direct tax levied on the net income or profit of corporations and entities from their business operations.

In the UAE, corporate tax is calculated at a rate of 9% of the net profit reported in the company’s financial statements after deducting applicable expenses and excluding exempt income. Any foreign taxes paid are also deducted from the reported profit.

The taxable income is determined after deducting all allowable expenses and exemptions. If the taxable income exceeds AED 375,000, a 9% corporate tax is applied.

Corporate Tax Calculation Example:

Let’s consider an example to understand corporate tax calculation in the UAE:

Example:

XYZ LLP, based in Abu Dhabi, UAE, released its 2021 annual financial statements, reporting a net profit of AED 500,000. They are eligible for deductions of AED 25,000. However, specific deduction types are not provided in the government’s information.

Calculation:

Details	Amount
Net Profit (a)	500,000
Less: All deductions (b)	25,000
Net Income (c)	475,000
Less: Exempt Amount (d)	375,000
Taxable Income (e)	100,000
Corporate Tax @9% on (e)	9,000

In this example, the net profit from the financial statement is first reduced by allowable deductions. Then, the exemption amount of AED 375,000 is subtracted to determine the taxable income. Hence, XYZ LLP will be liable to pay AED 9,000 (9% of AED 100,000) in corporate tax.

By understanding corporate tax calculation methods and examples, businesses in the UAE can ensure compliance with tax regulations and accurately assess their tax liabilities.

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