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Understanding Taxable Income Under UAE Corporate Tax: What Counts & How to Calculate It

What Is Taxable Income?
July 8, 2025 by
Understanding Taxable Income Under UAE Corporate Tax: What Counts & How to Calculate It
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With Corporate Tax now active in the UAE, one of the most essential areas every business must understand is taxable income — what it is, how it’s calculated, and how much tax applies.

Whether you are a Free Zone company, SME, or service provider, knowing how to calculate taxable income accurately is crucial to avoid penalties, manage risks, and stay compliant with the Federal Tax Authority (FTA).

This article outlines exactly what counts as taxable income in the UAE and how to calculate it step-by-step.

What Is Taxable Income?

In the UAE, taxable income is based on the accounting net profit of a business, as shown in its financial statements, prepared according to International Financial Reporting Standards (IFRS).

However, it’s not the same as your profit figure — taxable income is adjusted for specific items under the Corporate Tax Law, such as exempt income, disallowed expenses, and reliefs.

How to Calculate Taxable Income in the UAE

  1. Start with Accounting Net Profit
    This is the net profit (or loss) shown in your profit and loss statement.
  2. Add Back Disallowed Expenses
    Certain expenses are not deductible for tax purposes, such as:
    • Fines and penalties
    • Donations to non-approved organizations
    • Personal or unrelated business expenses
  3. Subtract Exempt Income
    Certain types of income may be exempt from Corporate Tax:
    • Qualifying dividends from UAE or foreign companies
    • Capital gains on shares (if conditions are met)
    • Income from foreign permanent establishments (subject to election)
  4. Apply Any Reliefs or Adjustments
    • Small Business Relief (if total revenue is below AED 3 million)
    • Business restructuring relief
    • Group relief (for transfers within qualifying group entities)
  5. Carry Forward Losses (if applicable)
    You may offset up to 75% of taxable income using tax losses brought forward from prior periods, subject to conditions.

Example: UAE Corporate Tax Calculation

DescriptionAmount (AED)
Accounting Net Profit600,000
Add Back: Non-deductible expenses+50,000
Less: Exempt Income (e.g., dividends)-100,000
Final Taxable Income550,000

Tax Payable:

  • 0% on first AED 375,000 = AED 0
  • 9% on remaining AED 175,000 = AED 15,750

Total Corporate Tax Payable = AED 15,750

Key Points to Remember

  • The first AED 375,000 of taxable income is subject to 0% Corporate Tax.
  • The 9% rate applies only to income exceeding AED 375,000.
  • For Free Zone entities, income must meet strict qualifying criteria to be taxed at 0%.
  • Proper financial records and accurate classification of income and expenses are essential to avoid compliance issues.

Common Mistakes Businesses Make

  • Assuming all profit is taxable without adjustments
  • Not identifying exempt income correctly
  • Mixing personal and business expenses
  • Overlooking small business relief or carry forward losses
  • Misreporting Free Zone income as qualifying when it isn’t

How Finzoryx Can Help

At Finzoryx, we help businesses:

  • Accurately calculate taxable income
  • Apply the correct tax adjustments
  • Structure records and reporting in line with FTA requirements
  • Avoid penalties and maintain tax compliance with confidence

We work with SMEs, startups, and Free Zone companies to ensure their books and tax positions are clean, accurate, and audit-ready.

Get Expert Help Now

Still unsure about your taxable income? Don’t risk penalties or assumptions.

Email: connect@finzoryx.com

Phone/WhatsApp: +971 503978121

Understanding Taxable Income Under UAE Corporate Tax: What Counts & How to Calculate It
finzoryx July 8, 2025
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