As an entity operating in the UAE, you must be aware that UAE is no more tax free and with effect from June 2023, corporate tax is also here. And while the 9% rate seems straightforward at first glance, the actual calculation of what you owe is anything but a simple percentage off your profits.
Let’s break it down together. This guide is for business owners who want to understand how UAE corporate tax really works and how tax and accounting services help in corporate tax filing, Dubai.
First Things First: Who Needs to File?
If you’re operating a business in Dubai or anywhere in the UAE, and you’re making a profit, chances are you’re considered a “Taxable Person” under the UAE Corporate Tax Law. That includes companies incorporated in the UAE, branches of foreign businesses, and even some individuals if they’re doing business as sole proprietors.
And yes, even Free Zone entities may need to file, especially if they earn any non-qualifying income. If you’ve got revenue and you’re in business, you likely need to get familiar with Corporate Tax Filing in Dubai.
Step 1: Start with Your Accounting Income
The calculation begins with your accounting net profit or loss for the financial year. This is your bottom-line figure after deducting expenses, as shown in your financial statements.
Most businesses prepare these statements using IFRS (or IFRS for SMEs if revenue is under AED 50 million). If your revenue is below AED 3 million, you may opt for the cash basis of accounting but only until you grow beyond that.
If you’re unsure which method you’re using or should be using, this is where experienced accounting services become essential. The accuracy of everything else depends on this starting point.
Step 2: Adjust for Exempt Income
This is where things get technical.
You’ll need to adjust your accounting income to remove income that is exempt from tax under UAE law. Examples include:
- Dividends from UAE companies
- Qualifying income from foreign subsidiaries (if you meet the “participation exemption” criteria)
- Income from foreign permanent establishments (if you’ve elected to exclude it)
These items are subtracted from your accounting income to avoid double taxation. But here’s the kicker: any expenses you incurred to earn this exempt income? Those aren’t deductible either.
Step 3: Add Back Non-Deductible Expenses
Not all business expenses are treated equally in the eyes of the FTA. Some costs you’ll need to add back to your income before calculating tax. These include:
- Entertainment expenses beyond the allowable limit
- Fines and penalties
- Bribes or illicit payments (obviously)
- Certain related party payments if not at arm’s length
- Capital expenditures (though depreciation may be allowed)
Even something as common as pre-trading expenses or marketing costs can become tricky if they’re not directly linked to generating taxable income. You’ll need to take a close look at your general ledger to catch these.
Step 4: Consider Interest Expense Limitations
Interest on loans and other debt financing can be deducted but only within limits.
Under the General Interest Deduction Limitation Rule, you can generally deduct net interest expenses only up to 30% of your adjusted EBITDA. Anything over that gets carried forward to future years.
For heavily financed businesses, this step alone can get complicated fast. This is another spot where having good accounting services can save you not just in tax, but in penalties for incorrect corporate tax filing Dubai.
Step 5: Apply Group or Restructuring Reliefs (If They Apply)
If your business is part of a group structure, you might qualify for:
- Group relief (transfers between group entities without triggering tax)
- Business restructuring relief (for mergers, spin-offs, etc.)
These reliefs can reduce or defer your taxable income but only if you apply them correctly and maintain supporting documentation.
Step 6: Offset Any Tax Losses
Tax losses can be carried forward and used to offset up to 75% of taxable income in future years. You can also transfer losses within a group under specific conditions.
But be careful if you haven’t maintained clear records or if ownership of the business has changed significantly, you might lose the ability to carry forward those losses.
Step 7: Calculate the Tax
Once you’ve adjusted your accounting income, subtracted exempt income, added back non-deductible expenses, and applied any reliefs or losses you’ll arrive at your taxable income.
From there, apply the corporate tax rates:
- 0% on the first AED 375,000
- 9% on income above AED 375,000
Let’s say your adjusted taxable income is AED 875,000:
- First AED 375,000 → taxed at 0% = AED 0
- Remaining AED 500,000 → taxed at 9% = AED 45,000
So, your corporate tax payable would-be AED 45,000.
If you’ve paid tax on the same income in another country, you might be eligible for a foreign tax credit, which can reduce your UAE liability (but not below zero).
What About Free Zones?
Many Free Zone entities assume they’re exempt. But it’s not that simple.
To enjoy the 0% rate on qualifying income, you must:
- Be a Qualifying Free Zone Person
- Earn only qualifying income (like transactions with other Free Zone businesses or foreign customers)
- Maintain proper books and meet substance requirements
If you earn a non-qualifying income or fail the compliance tests, you’re taxed like any other business.
A Word on Compliance
Even if your business falls below the AED 375,000 threshold and owes no tax, you’re still required to file a return. The FTA expects accuracy, transparency, and on-time submissions.
Miss the filing deadline or submit incorrect information? You could face fines or even a tax audit.
That’s why many businesses are turning to professional accounting services for support with Corporate Tax Filing in Dubai. With the rules still settling and the FTA ramping up enforcement, there’s a lot at stake.
Final Thoughts
Corporate tax in the UAE isn’t just a flat 9% on your profits. It’s a careful process of adjusting your numbers, applying exemptions and reliefs, and getting the documentation right.
You can absolutely do it yourself, but it’s a bit like doing your own legal contract. You might get it mostly right, but one overlooked clause or misclassified expense can cost you a lot.
If you’re serious about staying compliant and optimizing your position, it pays to sit down with a tax advisor who knows the ropes. And if you’re looking for help with Corporate Tax Filing in Dubai or simply want to tighten up your books, the right accounting services can make a big difference.
Need help reviewing your numbers or planning ahead? Let’s talk, it’s always better to sort these things before the deadline rushes.
