Here's How to Calculate Corporate Tax for UAE Businesses

Did you know that businesses in the UAE now have to pay a corporate tax on their profits? This means that the government wants a small share of the money companies make, but don’t worry - it’s super simple to understand!

In 2022, the UAE government announced a new tax system for companies. This tax will start either on June 1, 2023, or January 1, 2024, depending on when your business year starts. The corporate tax rate is 9%, but only on the money your business earns after all expenses are taken out.

Plus, there’s a “free space” of AED 375,000 where businesses don’t have to pay tax. Isn’t that cool?

Now, you might be thinking, “How does all of this work?” Well, let’s dive in and break it down so that anyone can get it! In this simple guide, you will learn how to calculate corporate tax with an example and what are the important terms you need to understand.

Key Terms You Need to Know

Before we get into the corporate tax calculation with example, let’s quickly understand some important words:

1. Revenue

This is the money your business makes—everything you earn before you pay for anything (like rent or supplies).

2. Deduction

Think of deductions as the things you can subtract from your earnings. For example, if you spent money to buy something for your business, that’s a deduction! These deductions reduce your taxable income.

3. Net Profit

This is what you have left after you take away all your expenses (like deductions). It’s the real money your business makes.

4. Taxable Income

This is the part of your net profit that will be taxed. If your net profit is bigger than AED 375,000, that extra money is what you’ll pay tax on.

5. Exempt Amount

The UAE gives you AED 375,000 of your profits that you don’t have to pay tax on. This is called the "exempt amount."

How to Calculate Corporate Tax: A Simple Example

Let’s make it super easy with an example!

Meet John. John runs a business called "John’s Textiles" in Dubai. Here’s what we know:

Total Revenue (how much John made): AED 2,000,000
Total Expenses (how much John spent): AED 1,200,000

Step 1: Find the Net Profit

First, we need to figure out how much money John actually made after spending on his business. To do this, we subtract his expenses from his revenue:

Net Profit = Revenue − Expenses
Net Profit = 2,000,000−1,200,000 = 800,000 AED

So, John made AED 800,000 after expenses.

Step 2: Apply Deductions

Let's assume that John is eligible for a special deduction of AED 25,000. We subtract this from his net profit:

Net Profit after Deduction = 800,000 − 25,000 = 775,000 AED

Now, John’s net profit is AED 775,000 after the deduction.

Step 3: Calculate the Taxable Income

Remember that John doesn’t have to pay tax on the first AED 375,000 of his net profit. Let’s subtract that from the AED 775,000:

Taxable Income = 775,000 − 375,000 = 400,000 AED
So, John’s taxable income is AED 400,000.

Step 4: Calculate the Corporate Tax

Now, we apply the tax rate. The corporate tax rate is 9% on anything over AED 375,000. So, let’s calculate:

Corporate Tax = 9% of Taxable income

Corporate Tax =400,000×0.09 = 36,000 AED

So, John will have to pay AED 36,000 in corporate tax.

So, What Does This Mean for John?

John’s business had total revenue of AED 2 million, but after subtracting expenses and deductions, he owes AED 36,000 in corporate tax. That’s it! Simple, right?

Do you Need Help with Corporate Tax?

If this still feels a bit tricky, don’t worry! CSPzone is here to help. We provide corporate tax services and can guide you through the process. Reach out to us for expert help today! Contact us on WhatsApp @ +971504655861 or email us at info@cspzone.com