📌 How to Calculate Taxable Income under UAE Corporate Tax Law 📖 Step 1: Start with Accounting Profit 👉 The calculation of taxable income begins with the net profit (accounting profit) as reported in the financial statements, which must be prepared in accordance with International Financial Reporting Standards (IFRS). Example: Net Profit (per P&L Statement) = AED 2,000,000 📖 Step 2: Adjust for Non-Deductible Expenses Certain expenses shown in your accounting records are not allowed for tax purposes and must be added back to accounting profit. Examples include: Fines and penalties (except for contractual penalties) Donations (unless to approved entities) Bribes or illegal payments Personal expenses Expenses not incurred wholly and exclusively for business purposes Example: Non-deductible expenses = AED 100,000 📖 Step 3: Deduct Exempt Income Some income streams are exempt from Corporate Tax and should be deducted from your accounting profit. Examples: Dividend income from qualifying UAE or foreign entities Capital gains from the sale of qualifying shares Income from a foreign permanent establishment (if eligible for exemption) Example: Exempt income = AED 150,000 📖 Step 4: Adjust for Tax Depreciation / Capital Allowances The accounting depreciation may differ from tax depreciation (as per Cabinet Decision No. 74 of 2023). You must adjust for: Add back accounting depreciation Deduct tax depreciation (capital allowances) as per UAE tax schedules Example: Accounting depreciation = AED 300,000 Tax depreciation = AED 250,000 Adjustment = Add back 300,000, deduct 250,000 📖 Step 5: Consider Any Tax Loss Relief If you have carried forward tax losses (up to 75% of taxable income for the year), deduct those. Example: Available carried forward tax loss = AED 400,000 Maximum deductible in the year = 75% of taxable income 📖 Step 6: Final Taxable Income Apply the above adjustments to arrive at Taxable Income. Example Calculation: Description Amount (AED) Accounting Profit 2,000,000 Add: Non-deductible expenses 100,000 Less: Exempt income (150,000) Add back: Accounting depreciation 300,000 Less: Tax depreciation (250,000) Taxable Income before losses 2,000,000 Less: Tax loss relief (75% max) (1,500,000) Final Taxable Income 500,000 📖 Step 7: Apply Corporate Tax Rates 0% on the first AED 375,000 9% on the remaining balance Example: 0% on 375,000 = AED 0 9% on (500,000 - 375,000) = 9% of 125,000 = AED 11,250 📌 Key Notes: Businesses must maintain detailed records to support each adjustment. Losses can be carried forward indefinitely (conditions apply). Tax depreciation schedules differ from accounting depreciation. Free Zone entities may qualify for 0% tax on qualifying income. 📌 How to Calculate Taxable Income under UAE Corporate Tax Law 📖 Step 1: Start with Accounting Profit 👉 The calculation of taxable income begins with the net profit (accounting profit) as reported in the financial statements, which must be prepared in accordance with International Financial Reporting Standards (IFRS). Example: Net Profit (per P&L Statement) = AED 2,000,000 📖 Step 2: Adjust for Non-Deductible Expenses Certain expenses shown in your accounting records are not allowed for tax purposes and must be added back to accounting profit. Examples include: Fines and penalties (except for contractual penalties) Donations (unless to approved entities) Bribes or illegal payments Personal expenses Expenses not incurred wholly and exclusively for business purposes Example: Non-deductible expenses = AED 100,000 📖 Step 3: Deduct Exempt Income Some income streams are exempt from Corporate Tax and should be deducted from your accounting profit. Examples: Dividend income from qualifying UAE or foreign entities Capital gains from the sale of qualifying shares Income from a foreign permanent establishment (if eligible for exemption) Example: Exempt income = AED 150,000 📖 Step 4: Adjust for Tax Depreciation / Capital Allowances The accounting depreciation may differ from tax depreciation (as per Cabinet Decision No. 74 of 2023). You must adjust for: Add back accounting depreciation Deduct tax depreciation (capital allowances) as per UAE tax schedules Example: Accounting depreciation = AED 300,000 Tax depreciation = AED 250,000 Adjustment = Add back 300,000, deduct 250,000 📖 Step 5: Consider Any Tax Loss Relief If you have carried forward tax losses (up to 75% of taxable income for the year), deduct those. Example: Available carried forward tax loss = AED 400,000 Maximum deductible in the year = 75% of taxable income 📖 Step 6: Final Taxable Income Apply the above adjustments to arrive at Taxable Income. Example Calculation: Description Amount (AED) Accounting Profit 2,000,000 Add: Non-deductible expenses 100,000 Less: Exempt income (150,000) Add back: Accounting depreciation 300,000 Less: Tax depreciation (250,000) Taxable Income before losses 2,000,000 Less: Tax loss relief (75% max) (1,500,000) Final Taxable Income 500,000 📖 Step 7: Apply Corporate Tax Rates 0% on the first AED 375,000 9% on the remaining balance Example: 0% on 375,000 = AED 0 9% on (500,000 - 375,000) = 9% of 125,000 = AED 11,250 📌 Key Notes: Businesses must maintain detailed records to support each adjustment. Losses can be carried forward indefinitely (conditions apply). Tax depreciation schedules differ from accounting depreciation. Free Zone entities may qualify for 0% tax on qualifying income.