How to Calculate Your Taxable Income Under UAE Corporate Tax?

Calculating the taxable income will be one of the key concerns of business owners when the UAE corporate tax comes into force on June 1st 2023. Although corporate tax consultants in Dubai can help you to calculate the taxable income accurately, understanding the rationale behind the calculation of taxable income is critical for you. This article deals with the approach adopted by the UAE government to determine the amount of income that will be taxed under the proposed corporate tax regime.

However, business owners should understand that the government is yet to publish the UAE Corporate Tax Law. It means many aspects of taxation may change once the final law comes into force. In light of this, business owners are advised to seek guidance from corporate tax advisors in Dubai before making any tax-related decision. The following article is based on the UAE Corporate Tax Public Consultation Document, which will enlighten you on how to calculate your taxable income.

Basis of Calculating Taxable Income Under the UAE Corporate Tax

The UAE corporate tax regime has adopted the use of accounting net profit (or loss) as stated in the financial statement of a business as a starting point to determine the taxable income. The usage of such a system is likely to reduce the complexity of the process as well as the compliance costs. Using the accounting standards also provides a common definition of income and a base as per the international standards.

This system also helps to limit the book-tax differences and prevent the businesses from having to maintain two sets of records: one for financial reporting purposes and the other for corporate tax purposes. Corporate tax advisors in Dubai can advise you on how to calculate your taxable income using the accounting net profit (or loss) method.

How to Prepare the Financial Statements for the UAE Corporate Tax?

The businesses are required to prepare the financial statements using accounting standards and principles that are accepted in the UAE. It is imperative to use the financial accounting period as the (annual) tax period. A business that does not have a financial accounting period can use the Gregorian calendar year as its default tax period. You can consult with the corporate tax consultants in Dubai to plan to determine the accounting standards and accounting period.

Should Businesses Use the International Financial Reporting Standards?

Most businesses in the UAE use the International Financial Reporting Standards for preparing their financial statements. However, the government may allow alternative financial reporting standards and mechanisms for determining taxable income to accommodate and reduce the compliance costs for certain taxpayers (e.g. startups and small businesses). Corporate tax advisors in Dubai can provide you with further insights on the use of IFRS or other alternative standards.

What Are the Exempt Incomes Under the UAE Corporate Tax?

The companies that are resident in the UAE will be subject to corporate tax on their worldwide income, including capital gains. However, certain forms of income will be exempt from the UAE corporate tax to avoid instances of double taxation. The following incomes are exempted from corporate tax in the UAE:

  • Income earned by UAE companies from investments in other companies, and operations conducted outside the UAE through foreign subsidiaries or foreign branches
  • A UAE corporate shareholder will be exempt from corporate tax on corporate tax dividends received and capital gains earned from the sale of shares of a subsidiary company
  • All domestic dividends earned from UAE companies, including dividends paid by a Free Zone Person that benefits from the 0% CT regime
  • Dividends paid by foreign companies, and capital gains from the sale of shares in both UAE and foreign companies (under certain conditions)
  • Capital gains on the disposal of shares in a Free Zone Person will be exempt from the UAE corporate tax if the Free Zone Person is a holding company and substantially all of its income is derived from shareholdings in subsidiary companies that meet the participation exemption conditions set out in the consultation document

Consult with the Best Corporate Tax Consultants in Dubai, UAE

Businesses need to start preparing for the UAE corporate tax now to avoid last-minute surprises and shocks. Corporate tax consultants in Dubai such as Jitendra Chartered Accountants (JCA) can be your most trusted ally to comply with the new corporate tax. JCA has a team of corporate tax advisors in Dubai who can help the businesses to comply with such complex provisions in the corporate tax regime.

Our services at JCA as Corporate Tax Consultants include CT Assessment & Advisory Services (one-time or retainer basis), CT Compliance Services & CT Agent Services to Represent to Federal Tax Authority (FTA) of UAE in case of any notices served by FTA. Ensure corporate tax compliance and avoid relevant penalties by availing of JCA’s corporate tax services in Dubai, UAE. JCA offers customised tax solutions to allow businesses to comply with the UAE corporate tax hassle-free.