How is income in taxed under Corporate Tax?
Corporate Tax is imposed on Taxable Income earned by a Taxable Person in a Tax Period.
Corporate Tax would generally be imposed annually, with the Corporate Tax liability calculated by the Taxable Person on a self-assessment basis. This means that the calculation and payment of Corporate Tax is done through the filing of a Corporate Tax Return with the Federal Tax Authority by the Taxable Person. The starting point for calculating Taxable Income is the Taxable Person’s accounting income (i.e. net profit or loss before tax) as per their financial statements. The Taxable Person will then need to make certain adjustments to determine their Taxable Income for the relevant Tax Period. For example, adjustments to accounting income may need to be made for income that is exempt from Corporate Tax and for expenditure that is wholly or partially non-deductible for Corporate Tax purposes.
What is taxable income as per Corporate Tax?
Article 1 of UAE CT Law define the term ‘Taxable Income’ stated below:
” The income that is subject to Corporate Tax under this Decree-Law.”
Chapter Six of this Decree-Law deals with the Calculating Taxable Income, hereunder Article 20 defines the general rules on determining the taxable income on which Corporate Tax to be calculated and paid.
In simpler terms, article 20 states that, the Taxable Income of each Taxable Person shall be determined separately on the basis of adequate, standalone financial statements prepared in accordance with accounting standards accepted in the State, after making adjustment for certain specified items namely Unrealised Gain or Loss, Exempt Income, Reliefs, Incentives Deduction, Tax losses, Transactions with Related Parties and Connected Person and Unrecorded Income or Expenditure.
What are the Corporate Tax rates in GCC?
What is the Corporate Tax Rate in UAE?
- Corporate Tax will be levied at a headline rate of 9% on Taxable Income exceeding AED 375,000.
- Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax.
Corporate Tax will be charged on Taxable Income as follows:
Resident Taxable Persons
| Taxable Income | Applicable Tax Rate |
| Up to AED 3,75,000* | 0% |
| More than AED 3,75,000* | 9% |
Qualifying Freezone Persons
| Taxable Income | Applicable Tax Rate |
| On Qualifying Income | 0% |
| Taxable income that is not Qualifying Income | 9% |
*this amount confirmed in a Cabinet Decision 116 of 2022 on the Applicable Taxable Income Threshold for Corporate Tax.
Illustration:
If a business has earned taxable income of AED 500,000 in a given financial year, what will be the UAE CT amount payable?
The CT liability will be calculated as follows:
- Taxable income of AED 0 ‐ AED 375,000 at 0% = AED 0
- Portion of taxable income exceeding AED 375,000 (i.e. AED 500,000 ‐ AED 375,000 = AED 125,000) at 9% = AED 11,250
The UAE CT liability for the year will be AED 0 + AED 11,250 = AED 11,250
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