Understanding Corporate Tax Calculation in the UAE: A Comprehensive Guide

Introduction to Corporate Tax in the UAE

With the introduction of corporate tax in the United Arab Emirates (UAE) effective from June 1, 2023, it has become imperative for businesses operating in the region to understand the nuances of how this tax is calculated. The new tax structure aims to be straightforward and competitive, primarily targeting profits that exceed AED 375,000. This guide will delve into the corporate tax rates and provide insight on calculating your tax obligations.

Corporate tax rates overview

0% Tax Rate: For taxable income up to AED 375,000.
9% Tax Rate: For taxable income exceeding AED 375,000.
Specific Rates: Some sectors, like oil and gas, may have higher rates.

How to Calculate Corporate Tax

Step 1: Identify Gross Income

Begin by determining your total gross income, which includes all revenue generated from business operations.

Step 2: Calculate Allowable Deductions

Next, subtract any allowable deductions (e.g., operating expenses, salaries, etc.) from the gross income to determine your taxable income.

Step 3: Apply the Tax Rates

This is where the calculation gets interesting, as different portions of your taxable income will be taxed at different rates.

Example Calculation

Assumptions:

Gross Income: AED 1,000,000
Allowable Deductions: AED 300,000

Calculating Taxable Income:

Taxable Income = Gross Income - Allowable Deductions
Taxable Income = AED 1,000,000 - AED 300,000 = AED 700,000

Tax Breakdown:

First AED 375,000:

Tax Rate: 0%
Tax = AED 375,000 × 0% = AED 0

Next AED 325,000 (from AED 375,001 to AED 700,000):

Tax Rate: 9%
Tax = AED 325,000 × 9% = AED 29,250

Step 4: Total Corporate Tax Liability

Finally, add up the taxes calculated for each portion of your taxable income.

Total Corporate Tax = Tax on first AED 375,000 + Tax on next AED 325,000
Total Corporate Tax = AED 0 + AED 29,250 = AED 29,250

Summary

In this rough calculation example:

Gross Income: AED 1,000,000
Allowable Deductions: AED 300,000
Taxable Income: AED 700,000
Total Corporate Tax Liability: AED 29,250

Contact Us for More Details

If you have any questions or need assistance with corporate tax registration in the UAE, feel free to contact us. We’re here to help you navigate the complexities of the corporate tax regime and ensure your business remains compliant