As tax laws in the UAE evolve, understanding how to calculate taxable income in Dubai has become essential for businesses. Here’s a simplified breakdown of how corporate tax is applied and how to stay compliant.
💡 What Is Taxable Income?
Taxable income is the profit a business must pay tax on under UAE’s Corporate Tax Law. It starts with accounting income but must be adjusted based on specific rules defined by the law (Federal Decree-Law No. 47 of 2022).
📊 How to Determine Taxable Income
– Prepare Financial Statements – Use UAE-accepted accounting standards.
– Make Legal Adjustments – Modify your accounting income according to tax laws to find the final taxable income.
🔁 Key Adjustments to Know
– Unrealized Gains/Losses: Only realized gains are taxed, so adjustments are required under accrual accounting.
– Exempt Income: Some income types are excluded from tax if conditions under Chapter Seven are met.
– Tax Reliefs & Deductions: Chapter Eight and Nine allow reliefs and deductions for operational costs, depreciation, etc.
– Related Party Rules: Transactions with subsidiaries must follow arm’s length principles.
– Loss Carryforward: Chapter Eleven allows tax losses to be carried forward to reduce future taxable income.
– Special Reliefs: Cabinet-approved incentives can also reduce your liability.
– Ministerial Adjustments: Future rules may introduce additional adjustments.
💼 Accounting Method Impact
– Accrual Accounting: Recognizes income/expenses when earned. Most UAE businesses use this.
– Cash Accounting: Records transactions only when money changes hands; suited for smaller businesses.
If accounting practices conflict with tax law, the tax rules override.
🧾 Small Business Relief
Businesses under a certain revenue threshold can claim Small Business Relief and may not be taxed at all—if they meet the eligibility criteria.
🛡️ Stay Compliant
Understanding taxable income ensures your business is legally aligned and avoids penalties. Given the complexity, it’s wise to consult professionals like BSB Legal Consultants for expert tax guidance.
