UAE Corporate Tax Taxable Income

The United Arab Emirates (UAE) implemented a corporate tax system in June 2023, marking a significant shift in the country's economic landscape. This new regime offers a competitive tax environment for businesses, with a focus on supporting small businesses and startups. Understanding taxable income is crucial for businesses operating in the UAE to ensure proper tax compliance.

What is Taxable Income?

Taxable income, in the context of UAE's corporate tax, refers to the profit a business generates after accounting for allowable deductions. It forms the base upon which the corporate tax liability is calculated.

Key Points about Taxable Income in the UAE

• Threshold for Small Businesses: The UAE offers a generous incentive for small businesses. Any taxable income not exceeding AED 375,000 (approximately USD 102,100) is subject to a 0% tax rate. This significantly reduces the compliance burden for startups and small enterprises.
• Standard Tax Rate: For taxable income exceeding AED 375,000, a standard corporate tax rate of 9% applies. This rate is among the most competitive in the region, solidifying the UAE's position as an attractive business hub.
• Qualifying Free Zone Persons (QFZPs): Businesses operating within designated Free Zones in the UAE may enjoy additional benefits. The qualifying income of a QFZP is also subject to a 0% tax rate. However, their non-qualifying income, earned outside the Free Zone, is taxed at the standard 9% rate.
• Multinational Enterprises (MNEs): For MNEs falling under the OECD's Base Erosion and Profit Shifting (BEPS) 2.0 framework (with global revenues exceeding AED 3.15 billion), different tax rates may apply as per specific BEPS rules.

Calculating Taxable Income

The UAE's corporate tax system uses a financial accounting profit as the starting point for determining taxable income. However, several adjustments are made according to the UAE Corporate Tax Law. These adjustments can be broadly categorized as:

• Adding back non-deductible expenses: Certain expenses incurred by the business, such as personal expenses of shareholders or penalties for non-compliance, are not tax-deductible and need to be added back to the accounting profit.
• Adjusting for specific tax treatment: Some transactions may have different tax treatment compared to accounting standards. Depreciation methods or the treatment of intangible assets may be examples.

It's important to consult with a qualified tax advisor to ensure accurate calculation of taxable income and compliance with UAE tax regulations.

Impact of Taxable Income on Corporate Tax Liability

Once the taxable income is determined, the applicable tax rate is applied to calculate the corporate tax liability. Here's a simplified example:

• A company earns a taxable income of AED 500,000.
• The first AED 375,000 is subject to a 0% tax rate.
• The remaining AED 125,000 (AED 500,000 - AED 375,000) is taxed at 9%.

Corporate tax liability = (Taxable income exceeding threshold) x Tax rate = AED 125,000 x 9% = AED 11,250

Conclusion

Reyson Badger provides experience advice on Understanding taxable income is essential for businesses operating in the UAE's corporate tax regime. The UAE offers a competitive tax environment with a beneficial threshold for small businesses and QFZPs. Consulting with a tax professional is recommended to ensure accurate tax calculations and compliance with UAE regulations. By effectively managing taxable income, businesses can optimize their tax liabilities and contribute to the UAE's growing economy.