UAE Corporate Tax Rates: The Tiered Structure
The UAE corporate tax system under Federal Decree-Law No. 47/2022 uses a simple two-tier rate structure:
| Taxable Income | Tax Rate | Who It Applies To |
|---|---|---|
| Up to AED 375,000 | 0% | All taxable persons — this is a universal exemption band |
| Above AED 375,000 | 9% | All mainland and non-qualifying free zone income |
| Large multinationals (revenue > EUR 750M) | 15% | OECD Pillar Two — Domestic Minimum Top-Up Tax (DMTT) |
| Qualifying Free Zone Person — qualifying income | 0% | QFZP meeting all conditions under Article 18 |
| Small Business Relief (revenue ≤ AED 3M) | 0% effective | Taxable income treated as zero. Must elect on return. Until 31 Dec 2026. |
The Corporate Tax Computation Formula
The computation starts with your accounting net profit from IFRS-compliant financial statements, then applies a series of adjustments:
| Accounting Net Profit (per IFRS financial statements) | AED XXX |
| + Add back: Non-deductible expenses | + AED XXX |
| − Subtract: Exempt income | − AED XXX |
| − Subtract: Loss carry-forward (up to 75%) | − AED XXX |
| = Taxable Income | AED XXX |
| First AED 375,000 × 0% | AED 0 |
| Remainder × 9% | AED XXX |
| = Corporate Tax Payable | AED XXX |
Step 1: Start with Accounting Net Profit (IFRS)
The starting point is your net profit (or loss) from financial statements prepared under International Financial Reporting Standards (IFRS) or equivalent standards accepted by the FTA. This is the bottom line of your income statement after all revenues and expenses.
Businesses with revenue under AED 3 million may use the cash basis of accounting. Above AED 3 million, accrual basis is mandatory.
Step 2: Add Back Non-Deductible Expenses
Certain expenses that reduce your accounting profit are not allowed as deductions for corporate tax purposes. You must add these back:
| Expense | Deductible? | Notes |
|---|---|---|
| Salaries, wages, employee benefits | ✅ Yes | Fully deductible if incurred for business purposes |
| Office rent, utilities | ✅ Yes | Business premises only |
| Depreciation, amortisation | ✅ Yes | As per IFRS standards |
| Professional fees (legal, accounting, audit) | ✅ Yes | If wholly and exclusively for business |
| Marketing, advertising | ✅ Yes | Business promotion costs |
| R&D expenditure | ✅ Yes | Fully deductible |
| FTA fines and penalties | ❌ No | Must add back to profit |
| Donations to non-qualifying entities | ❌ No | Only FTA-approved entities qualify |
| Entertainment beyond prescribed limits | ❌ Partially | 50% cap on entertainment/amusement expenses |
| Personal expenditure of owners | ❌ No | Owner withdrawals, personal expenses |
| Recoverable VAT | ❌ No | Input VAT you can claim back is not a cost |
| Interest (connected persons) | ❌ Capped | Limited to 30% of EBITDA for related-party interest |
| Expenses without documentation | ❌ No | FTA requires supporting invoices/contracts for all deductions |
Step 3: Subtract Exempt Income
Certain types of income are exempt from corporate tax to prevent double taxation:
• Domestic dividends — from UAE companies (automatic exemption)
• Qualifying participation income — dividends and capital gains from foreign subsidiaries (requires 5%+ ownership held for 12+ months)
• Foreign branch income — if the branch is subject to tax at 9%+ in the foreign country (election required)
• Intra-group transfers — qualifying transfers between group companies at book value
Step 4: Apply Loss Relief
If your business had a tax loss in a prior period, you can carry it forward to reduce taxable income in future profitable periods. The rules:
• Losses can offset up to 75% of taxable income in any future period
• No time limit on carrying losses forward
• Losses cannot be carried back to prior periods
• The 75% cap ensures some tax is always payable in profitable years
Worked Example 1: Mainland LLC (AED 2M Revenue)
| Item | Amount (AED) |
|---|---|
| Revenue | 2,000,000 |
| Less: Allowable expenses (salaries, rent, cost of goods) | (1,400,000) |
| Accounting net profit | 600,000 |
| Add back: Owner’s personal car expense | +25,000 |
| Add back: FTA late filing penalty | +3,000 |
| Less: Exempt dividend from UAE subsidiary | (15,000) |
| Taxable income | 613,000 |
| First AED 375,000 × 0% | 0 |
| Remaining AED 238,000 × 9% | 21,420 |
| Corporate tax payable | AED 21,420 |
Worked Example 2: Small Business (Under AED 3M — SBR Eligible)
| Item | Amount (AED) |
|---|---|
| Revenue | 1,200,000 |
| Less: Expenses | (900,000) |
| Accounting net profit | 300,000 |
| Elect Small Business Relief on return | Taxable income treated as 0 |
| Corporate tax payable | AED 0 |
Key: SBR must be actively elected on the return. It is not automatic. Revenue must not exceed AED 3 million. Not available to QFZPs or MNE group members. Available until 31 December 2026. Full SBR eligibility guide →
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Worked Example 3: Free Zone Company (QFZP)
| Item | Amount (AED) |
|---|---|
| Total revenue | 5,000,000 |
| — Qualifying income (sales to other FZ persons + exports) | 4,700,000 |
| — Non-qualifying income (mainland client services) | 300,000 |
| De minimis check: 300K / 5M = 6% | ⚠ Exceeds 5% — QFZP status LOST |
| All income taxed at 9% above AED 375,000 | — |
| Taxable income (after expenses of AED 3.5M) | 1,500,000 |
| First AED 375,000 × 0% | 0 |
| Remaining AED 1,125,000 × 9% | 101,250 |
| Corporate tax payable | AED 101,250 |
Warning: If this company’s non-qualifying income had been under 5% (AED 250,000 or less), the qualifying income of AED 4,700,000 would have been taxed at 0% and only the AED 250,000 at 9% — saving AED 91,800 in tax. This is why monitoring the de minimis threshold is critical for free zone companies. Read our QFZP qualifying activities guide →
Interest Deduction Limitation: 30% of EBITDA
For businesses with connected person (related party) borrowings, interest deductions are capped at 30% of EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). This prevents excessive debt loading to reduce taxable income.
Excess interest that cannot be deducted in the current period can be carried forward to future periods (subject to the same 30% cap each year).
This rule does not apply to interest on borrowings from unrelated third parties (e.g., bank loans), which remain fully deductible.
Realisation Basis Election
Under IFRS, fair value changes on assets and liabilities flow through profit. For corporate tax purposes, you can elect the realisation basis — meaning unrealised gains/losses are excluded from taxable income until the asset is actually sold or the liability settled.
This election applies to all assets and liabilities subject to fair value or impairment accounting. Once elected, it applies for the entire duration of holding those assets. Full realisation basis guide →
Common Computation Mistakes That Trigger FTA Audits
| Mistake | Impact | Prevention |
|---|---|---|
| Claiming personal expenses as business deductions | Audit + penalty | Separate personal and business accounts completely |
| Not adding back FTA penalties | Under-reporting taxable income | FTA fines are never deductible |
| Forgetting to elect SBR on the return | Full 9% tax applied | Actively tick SBR on EmaraTax return |
| Mixing qualifying and non-qualifying income (QFZP) | Loss of 0% rate for 5 years | Maintain separate revenue tracking per income type |
| No transfer pricing documentation | FTA adjusts related-party transactions | Prepare TP documentation before filing |
| Carrying forward losses beyond 75% cap | Over-deduction, penalties | Apply 75% limit each year |
| Missing the entertainment 50% cap | Disallowed deduction | Track entertainment separately in accounting |
⚠️ The Bottom Line
The formula is straightforward: net profit + add-backs − exemptions − losses = taxable income. But the details — which expenses are deductible, whether you qualify for SBR, how to handle QFZP de minimis — require precision. One wrong deduction can trigger an FTA audit. Professional computation from AED 249 at Fastlane is cheaper than fixing mistakes later.