The UAE has long been considered a business-friendly tax environment, with no corporate tax and occasional corporate tax obligations. However, with the latest creation of the federal corporate tax agents in the UAE, organizations must now recognize a way to accurately calculate their tax liabilities. At Risians Accounting, we provide professional tax solutions as a leading tax agent in Dubai, helping organizations navigate tax compliance effectively.
In this comprehensive guide, we'll walk you through the essentials of corporate tax in the UAE and offer you an overview of how to efficiently calculate your tax liability. Whether you are a small business or a large corporation, these steps will help you recognize your liabilities and limit your capacity tax liability.
Understanding the basics of corporate income tax in the UAE
The UAE corporate tax applicable from 1 June 2023 applies to all commercial corporate sports except the extractive industry (including oil and petroleum) and people operating in unconsolidated zones for whom certain exemptions are difficult.
Here are some essentials to keep in mind:
Tax Rate: The fashionable UAE corporate tax charge is approximately 9% on taxable income exceeding AED 375,000. Any taxable income below this threshold is exempt.
Scope of Corporate Tax: Corporate tax applies to companies based primarily in the UAE as well as foreign entities that are managed within the UAE.
Calculation of taxable income: Taxable profit is derived by deducting allowable prices from gross profit. To determine taxable income, it is necessary to properly account for all sales and expenses.
By partnering with experienced tax agents in Dubai like Risians Accounting, companies can make sure they comply with today's rules and avoid heavy fines.
A step-by-step guide to calculating your tax liability
Step 1: Determine your gross income
The first step in calculating your tax liability is to determine the gross profit of your trading company. This includes all revenue generated from business activities, along with:
Sales revenue
Service charges
Interest and dividends
Other types of passive income
Be sure to include all types of sales, as missing assets can result in incorrect reporting and capacity penalties. As a reliable tax agent for Dubai corporations, Risians Accounting can help ensure that all sources of income are correctly stated and documented.
Step 2: Calculating deductible expenses
The UAE corporate tax regime allows groups to deduct exact fees related to commercial enterprises from their gross income. Deductible fees consist of:
Salaries and wages
Rent and fees
Office fabrics
Marketing and advertising fees
Professional pricing, such as legal or accounting services
Non-deductible charges commonly include capital charges (including gadget purchases), private charges and penalties. Accurate documentation of all deductible awards is essential to ensure they are allowable under UAE tax guidelines.
Step 3: Calculate your taxable income
Your taxable income is calculated by subtracting deductible expenses from your gross profits:
Taxable income
=
Gross income
−
Deductible Expenses
Taxable Income = Gross Income - Deductible Expenses
This taxable profit serves as a muse for determining your tax liability. With a knowledgeable tax agent in Dubai such as Risians Accounting, you can ensure that this calculation is accurate and compliant with tax legislation.
Step 4: Apply the tax exemption limit
The UAE Corporate Tax Law offers a threshold exemption where the primary AED 375,000 of taxable income is exempt from corporate tax. This exemption is implemented in all companies, so if your taxable profit is much less than AED 375,000, you will not owe any corporation tax.
If your taxable income exceeds this limit, you can most easily comply with the tax rate up to amounts above AED 375,000.
Step 5: Apply the corporate tax rate
Once you reach a taxable income of more than AED 375,000, follow the 9% tax rate to decide your final tax liability. The system could be as follows:
Corporate Tax Liability
=
(
Taxable income
−
Exception threshold
)
x
zero.09
Corporate Tax Liability = (Taxable Income Exemption Threshold) × 0.09
For example, if your taxable income for the year is AED 600,000:
Taxable amount
=
six hundred
,
000
−
375
,
000
=
225
,
000
Taxable amount=600,000-375,000=225,000
Corporate Tax Liability
=
225
,
000
x
0.09
=
20
250
Corporate Tax Liability = 225,000 × 0.09 = 20,250
In this situation, the tax liability would be AED 20,250 per tax year.
Additional considerations for accurate corporate tax calculations
- Loss management
Businesses operating at a loss can carry forward those losses to offset taxable income in subsequent years. For example, if you suffer an internet traffic loss in 2023, you can use that loss to reduce your taxable income in 2024 or later, subject to certain indicators.
- Special rules for free zones
Although corporations operating in duty-free zones in the UAE usually enjoy tax-free status, certain criteria must be met to maintain this exemption. Free sector corporations that operate outside the region or address entities on the UAE mainland can be a challenge to corporation tax. Consulting a tax agent in Dubai like Risians Accounting ensures compliance with these nuances.
- Interest deductions
The UAE Corporate Tax Law allows interest charges to be deducted but with limitations. Only interest rates up to 30% of EBITDA (earnings before interest, taxes, depreciation and amortization) are deductible. This cap ensures that businesses will no longer use excessive debt to reduce taxable profits.
Key deadlines and submission requirements
Businesses are required to document their corporate income tax returns every year. The deadline for submission is within 9 months after the end of the financial 12 months. For example, if your financial year ends on 31 December, the due date for your corporation tax return will be 30 September the following year.
Missing these time limits can also result in penalties, interest, or additional jail time. At Risians Accounting, we prioritize on-time filing and offer full tax filing assistance so your business meets every deadline stress-free.
Common mistakes to avoid when calculating corporate income tax
Overlooking Certain Income Streams: Some agencies may also inadvertently exclude sources of passive income such as interest or dividends. Ensure all income is properly accounted for.
Imprecise categorization of expenses: Not all expenses are deductible. Misclassification of personal or capital expenses as business fees can lead to non-compliance.
Missing carry-forward losses: If your business has made losses in previous years, make sure you use them to reduce taxable profits where appropriate.
Incorrect application of the exemption threshold: The AED 375,000 threshold must be applied as it should be to avoid overpayment or underpayment of taxes.
Why work with Risians Accounting as your tax agent in Dubai?
Navigating the UAE tax laws can be complex and mistakes can lead to heavy penalties. A dependent tax agent relied upon by Dubai corporations, Risians Accounting provides in-depth corporate tax services including:
Accurate Tax Calculations: Our professionals are well-versed in UAE corporate tax laws and ensure accurate and compliant tax calculations for all clients.
Filing support and deadline management: We manage your company's tax filings and ensure all forms and files are submitted on time.
Tailored Tax Solutions: We provide tax planning and advisory services tailored to meet the exact needs of your business enterprise, from start-ups to established agencies.
Proactive Tax Planning: When you work with our team, you gain access to techniques that reduce tax liability and increase economic performance.
Final considerations on corporate income tax in the United Arab Emirates
Calculating corporate tax as it should be is essential to maintaining compliance and avoiding the consequences of high prices. Based on information about the basis of gross income, deductibles, and the corporate tax threshold, groups can calculate the legal tax liability more efficiently. For total corporations based in Dubai, partnering with a professional tax agent such as Risians Accounting provides an efficient method to deal with corporate tax liability.
Are you ready to optimize your tax strategy? Contact Risians Accounting today!
At Risians Accounting, we are dedicated to providing organizations with complete tax answers that simplify compliance and reduce their tax burden. If you are looking for a reliable tax agent in Dubai, contact us today to find out how we can streamline your corporate tax needs and optimize your tax approach for success.
