How To Calculate Corporate Tax In UAE: Step-by-Step

The UAE's corporate tax came into effect in June 2023, and if you're running a business here, you need to know exactly what you owe. Understanding how to calculate corporate tax in UAE isn't just about staying compliant, it's about protecting your bottom line and making smarter financial decisions.

The good news? The calculation isn't complicated once you understand the framework. You're working with a 9% tax rate on taxable income exceeding AED 375,000, with anything below that threshold taxed at 0%. But getting from your accounting net profit to your actual tax liability requires a few adjustments.

This guide breaks down the entire process step by step, from identifying your taxable income to applying the correct rate and filing your return. At GTAG, our tax team helps businesses across Dubai work through these calculations every day, and we've distilled the process into clear, actionable steps you can follow on your own or use as a foundation before consulting a professional.

What corporate tax counts in the UAE

Before you can calculate anything, you need to understand what actually falls under UAE corporate tax. The Federal Tax Authority defines this clearly: any juridical person conducting business or business activity in the UAE is subject to corporate tax. This includes mainland companies, free zone entities (with specific conditions), and foreign companies with a permanent establishment in the UAE.

Who pays corporate tax

Your business falls under corporate tax if it's a legal entity registered in the UAE or a foreign entity earning UAE-sourced income. This covers LLCs, branches of foreign companies, partnerships treated as separate legal entities, and most free zone businesses (unless they qualify for the 0% rate by meeting specific conditions). Natural persons conducting business under a trade license also need to assess whether their activities constitute a juridical person for tax purposes.

Certain entities get automatic exemptions: government entities, government-controlled entities meeting specific conditions, public benefit organizations, and businesses involved in extracting natural resources (already subject to Emirate-level taxation). Investment funds and real estate investment trusts structured correctly also qualify for exemptions.

What income is taxable

Your taxable income starts with all revenue generated from your business activities in the UAE. This includes sales of goods and services, rental income from property, interest and investment income, and gains from selling business assets. The key is that the income must be connected to your UAE business operations.

You can't just look at your bank account balance. Taxable income follows specific recognition rules under accounting standards.

Income from foreign permanent establishments gets excluded from UAE corporate tax calculations because it's typically taxed in the source country. Dividends and capital gains from qualifying shareholdings (owning at least 5% for one year) also receive exemption, preventing double taxation of profits already taxed at the subsidiary level.

What's exempt or excluded

Understanding when you qualify for the 0% rate matters just as much as knowing the 9% calculation. Free zone businesses maintaining adequate substance in the free zone, not conducting business with mainland UAE, and meeting all qualifying conditions pay 0% on qualifying income. Your first AED 375,000 of taxable income also gets taxed at 0%, regardless of where you operate.

Small business relief provides another pathway: if your revenue stays below AED 3 million, you can elect for simplified compliance that may reduce your effective tax burden. This election comes with specific conditions you need to evaluate against your business structure.

Step 1. Start with accounting profit

Your accounting net profit forms the starting point for understanding how to calculate corporate tax in UAE. This isn't a random number you estimate. You pull it directly from your audited financial statements for the tax period, which means your profit and loss statement becomes your primary document. The Federal Tax Authority requires businesses to follow International Financial Reporting Standards (IFRS) or an acceptable alternative, so your accounting framework determines the profit figure you start with.

Your financial statements are the foundation

You need complete financial statements prepared according to IFRS or IFRS for SMEs. These include your statement of profit or loss, statement of financial position, statement of cash flows, and notes to the accounts. Most UAE businesses already prepare these for Commercial Companies Law compliance, but the accuracy matters more when tax calculations depend on them.

Your tax calculation quality can never exceed your accounting quality.

Financial statements must cover your tax period, which typically aligns with your financial year. If you're calculating corporate tax for the first time, you'll use the period from June 1, 2023 (or your registration date if later) through your financial year end. The accounting net profit sits at the bottom of your profit and loss statement, after deducting all operating expenses, depreciation, interest, and other costs.

How to extract your accounting net profit

Open your profit and loss statement and locate the final line item, typically labeled "Net Profit" or "Profit for the Year." This figure represents your accounting profit before tax adjustments. You'll find it after all revenue recognition, expense matching, and non-cash items like depreciation have been calculated according to your accounting standards.

Record this number separately because it becomes line one of your corporate tax calculation. You'll adjust it in the next steps, but the accounting net profit establishes your baseline.

Step 2. Make tax adjustments to profit

Your accounting net profit doesn't equal your taxable income because tax rules differ from accounting standards. The Federal Tax Authority requires you to adjust your accounting profit by adding back non-deductible expenses and removing items that receive different tax treatment. These adjustments bridge the gap between what your financial statements show and what the tax law recognizes.

Add back non-deductible expenses

You need to add back any expenses that appeared in your profit and loss statement but don't qualify for tax deduction. Start with penalties and fines paid to government authorities, which reduce accounting profit but get disallowed for tax purposes. Entertainment expenses exceeding the prescribed limits go back into your taxable income calculation.

Personal expenses charged to the business must be added back, including private use of company vehicles, personal travel, and non-business meals. Donations that don't meet the qualifying criteria for tax relief also require adjustment. Interest expenses exceeding the 30% EBITDA cap under thin capitalization rules get added back to prevent excessive debt loading.

Your accounting records might accept these expenses, but tax law applies stricter standards for deductibility.

Depreciation calculated under accounting standards gets replaced with capital allowances at prescribed tax rates. Add back your accounting depreciation, then deduct the tax depreciation separately. Related party transactions not conducted at arm's length require adjustment to market value, adding back any excess amounts paid to connected entities.

Deduct tax-allowable items

After adding back non-deductible items, you subtract amounts that reduce taxable income under tax law. Capital allowances on qualifying assets replace accounting depreciation, typically calculated at specific percentages depending on asset type. Research and development expenditure qualifying for enhanced deductions gets deducted beyond the accounting treatment.

Tax losses from previous periods that you're carrying forward reduce your current taxable income, subject to specific conditions and time limits.

Step 3. Apply reliefs and calculate taxable income

After making all tax adjustments to your accounting profit, you now apply any reliefs your business qualifies for before arriving at your taxable income. This step determines the actual figure you'll use to calculate your tax liability. Understanding how to calculate corporate tax in UAE requires knowing which reliefs apply to your situation, because they directly reduce the amount subject to the 9% rate.

Small business relief option

You can elect for small business relief if your revenue stays below AED 3 million for the tax period. This election simplifies your compliance obligations and allows you to treat your revenue as your taxable income, subject to adjustments for capital expenditure and withdrawals. The relief eliminates complex expense tracking requirements.

Small business relief provides administrative ease, but you need to evaluate whether it actually reduces your tax burden compared to standard calculations.

The election remains valid for future tax periods until your revenue exceeds the threshold or you choose to revoke it. You make this election in your corporate tax return, and it applies to the entire tax period.

Calculate your taxable income

Take your adjusted accounting profit from Step 2 and subtract any remaining reliefs. Your calculation follows this format:

Accounting Net Profit

• Non-deductible expenses

• Tax-allowable deductions

• Qualifying tax losses carried forward

• Other applicable reliefs = Taxable Income

Record your final taxable income figure because this becomes the base for your corporate tax calculation. If your taxable income falls below AED 375,000, you'll pay zero tax. Any amount exceeding this threshold gets taxed at 9%, which you'll calculate in the next step.

Step 4. Calculate corporate tax due

You've reached the final calculation step where you apply the UAE's two-tier tax rate to your taxable income. This determines your actual corporate tax liability for the period. The calculation involves splitting your taxable income between the 0% threshold band and the 9% standard rate, then adding any applicable amounts together.

Apply the two-tier rate structure

The UAE applies 0% tax on the first AED 375,000 of taxable income, and 9% on any amount exceeding that threshold. You split your taxable income into these two brackets. If your taxable income sits below AED 375,000, your corporate tax equals zero and you're done. When your taxable income exceeds AED 375,000, you calculate tax only on the excess amount.

The AED 375,000 threshold isn't a deduction. You always pay 0% on this band, making it an effective basic allowance built into the rate structure.

Use this calculation template:

Taxable Income: AED [your amount]

• First AED 375,000 × 0% = AED 0

• Remaining amount × 9% = AED [tax due] Total Corporate Tax Due = AED [tax due]

Calculate your final tax liability

Apply the formula to your specific taxable income figure from Step 3. If you calculated taxable income of AED 1,000,000, you'd pay zero tax on the first AED 375,000, then apply 9% to the remaining AED 625,000, resulting in AED 56,250 tax due. This represents your complete corporate tax liability for the period.

Record this final amount because you'll transfer it to your corporate tax return when filing. Understanding how to calculate corporate tax in UAE means knowing this final number determines your quarterly payment obligations and annual settlement amount.

Next steps to stay compliant

Understanding how to calculate corporate tax in UAE represents just the starting point of your compliance journey. You need to file your corporate tax return within nine months of your financial year end, making your first payment deadline critical to avoid penalties. Keep your calculation documentation organized, including all adjustment schedules, relief claims, and supporting invoices that justify your taxable income figure.

Your quarterly payment obligations begin once you know your annual tax liability exceeds AED 100,000. Track these deadlines carefully and maintain accurate records throughout the year rather than scrambling at filing time. Changes to UAE tax regulations happen regularly, and staying current with Federal Tax Authority updates protects you from compliance gaps.

If your calculation revealed complexities around transfer pricing, loss carryforward, or group relief claims, professional guidance ensures you're maximizing legitimate deductions while meeting all requirements. Contact our tax team at GTAG to review your specific calculation and ensure you've captured every available relief before filing your return.