How to Calculate Your Taxable Income Under UAE Corporate Tax Law

June 23, 2025

Where Do You Start?

If you’re running a business in the UAE, working out your taxable income is a must-do step. This is what decides how much Corporate Tax you’ll actually pay at the end of your financial year. But let’s be honest, if you’re not an accountant, this can sound complicated. So let’s keep it simple, with real-world language and examples.

Just like you’d figure out your bottom line for any year, you start the calculation with your accounting profit, the net profit or loss shown in your financial statements. In the UAE, these financials are prepared according to IFRS or the simpler IFRS for SMEs. If you’re not sure what that means, think of it as using a standard way to keep score, so the government knows everyone is playing by the same rules.

So, let’s say your company, call it ABC LLC, closes out the year and the final profit shown in its accounts is AED 1,200,000. This is your starting point.

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Why Don’t You Just Pay Tax on the Accounting Profit?

Good question. While your accounting profit is the baseline, the UAE’s Corporate Tax Law requires a few extra steps to make sure your taxable income reflects what the law wants to tax (and what it doesn’t). This means you’ll need to make adjustments for certain items that either shouldn’t be taxed or shouldn’t be deducted.

It’s not about making things tricky, it’s about making sure the system is fair and works the same for every business.

The Key Adjustments to Make

Let’s break down the most important adjustments, one by one, using our example as we go.

1. Add Back Non-Deductible Expenses

Some expenses might be shown in your accounts, but the tax rules don’t allow you to use them to lower your tax bill. These could include fines, penalties, or certain entertainment costs. In the UAE, for example, only half of your entertainment spending is allowed, so if you spend AED 40,000 on business entertainment, only AED 20,000 will count as a deduction, and the other AED 20,000 gets added back.

Say ABC LLC had AED 100,000 in expenses that aren’t deductible (maybe a mix of fines and entertainment). You’ll need to add this amount back to your accounting profit.

2. Subtract Exempt Income

There’s some income you may have earned that the tax law doesn’t want to tax. Examples here could be qualifying dividends (certain profit shares from other companies) or income from a foreign branch that meets the exemption rules. If you earned this sort of income, you subtract it from your profit.

So if ABC LLC received AED 200,000 in exempt dividends, you subtract this out from your taxable base.

3. Adjust for Unrealised Gains or Losses

Sometimes, your financial statements will show gains or losses from things like currency changes, asset revaluations, or investments that haven’t actually been sold yet. Depending on your accounting method and the tax law’s requirements, these unrealised numbers may need to be adjusted. Some businesses in the UAE can opt to be taxed on these only when they become real, not when just shown on paper.

If ABC LLC had an unrealised gain or loss and you’re following the standard rules, you’ll either add it back or remove it, based on the law.

4. Transfer Pricing Adjustments

If your business deals with related companies, like a sister company, a parent, or a controlled subsidiary, you need to make sure your transactions are at “arm’s length.” That means pricing them as if you were dealing with a stranger. If the Federal Tax Authority reviews your accounts and sees that the prices are not what they would be in an open market, they might require you to adjust the numbers.

So, for ABC LLC, if there’s any correction needed for these related party transactions, you’ll need to adjust your profit accordingly.

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Putting It All Together: A Real Example

Let’s recap our example. ABC LLC starts with a net accounting profit of AED 1,200,000 for the year.

Suppose you discover you have:

AED 100,000 in expenses that aren’t allowed for tax purposes.
AED 200,000 in income that is exempt under the law.

Here’s how you work it out:

Start with AED 1,200,000 (accounting profit).
Add AED 100,000 (non-deductible expenses).
Subtract AED 200,000 (exempt income).

That leaves you with AED 1,100,000 as your taxable income for the year. This is the number that will be used to calculate your Corporate Tax.

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What About the Formula?

It’s really just this:

**Accounting Profit

Non-deductible Expenses
– Exempt Income
± Other Adjustments
= Taxable Income**

But remember, it’s always based on what the law actually allows or excludes—not just what’s on your books.

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Keep Track of Everything

Here’s a tip: always keep clear records of how you did your calculations and what adjustments you made. This isn’t just about staying organized. If the Federal Tax Authority ever checks your return, you’ll need to show exactly how you got your numbers.

Keep a file with:

Copies of your financial statements
Lists and details of non-deductible expenses
Proof of exempt income
Calculations or reports for unrealised gains or related party transactions

If there’s ever a question, these documents will save you a lot of time and trouble.

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Why Accuracy Matters

Getting your taxable income right isn’t just about paying the right amount of tax. It’s about staying out of trouble, too. Mistakes in your calculations can lead to audits or even penalties, and no one wants a tax headache down the road. The FTA takes errors seriously—if you underreport, even by accident, you could be asked to pay extra tax and face a fine.

Can a Tool Make This Easier?

Absolutely. If this all sounds like a lot to keep up with, you’re not alone. Many UAE businesses use software or platforms like Tax Star to handle the details, track adjustments, and organize everything for filing. Tax Star is designed to help you stay on track, so you’re not left scrambling at tax time.