Key Takeaways
5 insights · 14 min readThe formula is net profit + add-backs − exemptions − losses = taxable income, then 0% on the first AED 375,000 and 9% above.
Start from IFRS accounting profit, then adjust: add back non-deductibles (FTA penalties, owner’s personal costs, half of entertainment) and subtract exempt income.
QFZP de minimis is a cliff edge: cross the lower of 5% of revenue or AED 5M in non-qualifying income and you lose the 0% rate entirely for five years.
Losses offset up to 75% of taxable income with no time limit. One wrong deduction can trigger an FTA review — Fastlane computes and files from AED 249.
Small Business Relief runs only to tax periods ending on or before 31 December 2029, must be elected in each eligible return, and if it is not elected for an eligible year it cannot be claimed for future years.
UAE Corporate Tax is computed by taking your IFRS accounting net profit, adding back non-deductible expenses, subtracting exempt income and any tax loss carried forward (up to 75%), to reach taxable income. The first AED 375,000 is taxed at 0% and the remainder at 9%. Reliefs such as Small Business Relief or Qualifying Free Zone Person treatment then apply where eligible. The headline rate is simple; the adjustments are where accuracy matters.
In this guide
The tax rates The computation formula Step 1: IFRS net profit Step 2: Non-deductible expenses Step 3: Exempt income Step 4: Loss relief Example 1: Mainland LLC Example 2: SBR business Example 3: Free zone QFZP Interest limit & elections Mistakes that trigger audits Key terms explainedThe UAE Corporate Tax computation looks deceptively simple: 0% on the first AED 375,000 of taxable income and 9% on the rest. The complexity is in getting to taxable income — which expenses are deductible, what income is exempt, how losses and the free zone rules work. This guide walks through the full computation step by step, with three worked examples, and shows how our Corporate Tax filing service handles it from AED 249. You can also sanity-check figures with our Corporate Tax calculator, or see the wider framework in the UAE corporate tax guide.
What are the UAE Corporate Tax rates?
Corporate Tax under Federal Decree-Law No. 47 of 2022 uses a simple tiered structure, with special treatment for free zones and large multinationals.
| Taxable income / status | Rate | Who it applies to |
|---|---|---|
| Up to AED 375,000 | 0% | All taxable persons — a universal 0% band |
| Above AED 375,000 | 9% | Mainland and non-qualifying free zone income |
| QFZP — qualifying income | 0% | A Qualifying Free Zone Person meeting all Article 18 conditions |
| Small Business Relief (revenue ≤ AED 3M) | 0% effective | Taxable income treated as nil; must elect on the return; until 31 Dec 2029 |
| Large MNE groups (global revenue ≥ EUR 750M) | 15% | Domestic Minimum Top-up Tax (OECD Pillar Two), for years starting on or after 1 Jan 2025 |
For the vast majority of UAE businesses, the operative rates are simply 0% and 9%. The 15% Domestic Minimum Top-up Tax affects only very large multinational groups and does not change the computation for ordinary companies.
What is the Corporate Tax computation formula?
The computation begins with your accounting profit and applies a series of adjustments to reach taxable income. In summary:
| Computation line | Effect |
|---|---|
| Accounting net profit (per IFRS financial statements) | Starting point |
| Add back: non-deductible expenses | + increases taxable income |
| Subtract: exempt income | − reduces taxable income |
| Subtract: tax loss carried forward (up to 75%) | − reduces taxable income |
| = Taxable income | result |
| First AED 375,000 × 0% | AED 0 |
| Remainder × 9% | = Corporate Tax payable |
Step 1: Start with accounting net profit (IFRS)
The starting point is your net profit or loss from financial statements prepared under IFRS (or a standard the FTA accepts) — the bottom line of your income statement after all revenues and expenses. Everything else in the computation is an adjustment to this figure.
A practical note on accounting basis: businesses with revenue under AED 3 million may use the cash basis of accounting; above AED 3 million, the accrual basis is required. Getting the financial statements right is the foundation — our accounting and bookkeeping service prepares IFRS-compliant statements that feed straight into the computation.
Step 2: Which expenses are deductible, and which must be added back?
Some expenses that reduce your accounting profit are not allowed for Corporate Tax and must be added back. The table below separates the common cases.
| Expense | Deductible? | Notes |
|---|---|---|
| Salaries, wages, employee benefits | Yes | Fully deductible if for business purposes |
| Office rent, utilities | Yes | Business premises only |
| Depreciation, amortisation | Yes | As per IFRS |
| Professional fees (legal, accounting, audit) | Yes | If wholly and exclusively for business |
| Marketing, advertising, R&D | Yes | Business promotion and research costs |
| Entertainment / amusement | 50% only | Half of qualifying entertainment expenditure is disallowed |
| Net interest expenditure | Capped | Limited under the general interest limitation rule (see below) |
| FTA fines and penalties | No | Never deductible — add back in full |
| Donations to non-qualifying entities | No | Only approved / qualifying public benefit entities count |
| Personal expenditure of owners | No | Owner withdrawals and personal costs |
| Recoverable input VAT | No | VAT you can reclaim is not a cost |
| Expenses without documentation | No | Supporting invoices/contracts are required |
Step 3: What income is exempt from Corporate Tax?
Certain income is exempt, largely to prevent double taxation, and is subtracted in the computation:
| Exempt income | Why it is subtracted |
|---|---|
| Domestic dividends | Dividends from UAE companies — exempt automatically. |
| Qualifying participation income | Dividends and capital gains from a shareholding of at least 5% held for 12 months or more, subject to conditions. |
| Foreign permanent establishment income | Where an election is made and the foreign profits bear sufficient tax abroad. |
| Qualifying intra-group transfers | Qualifying transfers between group companies at book value. |
Step 4: How do tax loss carry-forwards work?
If your business made a tax loss in an earlier period, you can carry it forward to reduce taxable income later. The rules are:
| Loss carry-forward rule | Detail |
|---|---|
| Offset cap | Up to 75% of taxable income in any future period. |
| Time limit | None — losses carry forward indefinitely. |
| Carry-back | Not permitted — losses cannot offset a prior period. |
| Practical effect | Some tax is generally payable in a profitable year even with large losses; continuity-of-ownership and business-activity conditions apply. |
Want your computation done properly?
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How is CT computed for a mainland LLC? (Worked example 1)
A mainland LLC with AED 2,000,000 revenue, two add-backs and one exempt dividend:
| 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 |
How does Small Business Relief change the computation? (Worked example 2)
A business under AED 3 million revenue that elects Small Business Relief:
| Item | Amount (AED) |
|---|---|
| Revenue | 1,200,000 |
| Less: expenses | (900,000) |
| Accounting net profit | 300,000 |
| Elect Small Business Relief on the return | Taxable income treated as 0 |
| Corporate Tax payable | AED 0 |
Small Business Relief: elect it in time, or lose it
The Small Business Relief scheme is available until 31 December 2029, which means eligible companies can claim SBR for tax periods ending on or before this date. However, if SBR is not elected for any eligible tax year, it cannot be claimed for future years — the relief must be actively elected in each eligible corporate tax return, so it is a decision to make on time, not one to defer. Revenue must not exceed AED 3 million, and it is unavailable to QFZPs and to members of a multinational enterprise group. See our Small Business Relief service →
What happens when a QFZP breaches de minimis? (Worked example 3)
A free zone company with AED 5,000,000 total revenue, of which AED 4,700,000 is qualifying (sales to other free zone persons and exports) and AED 300,000 is non-qualifying (mainland client services):
| Item | Amount (AED) |
|---|---|
| Total revenue | 5,000,000 |
| Qualifying income (FZ sales + exports) | 4,700,000 |
| Non-qualifying income (mainland services) | 300,000 |
| De minimis check: 300,000 / 5,000,000 = 6% | Exceeds 5% — QFZP status lost |
| 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 |
The de minimis threshold is a cliff edge
Here, non-qualifying income of AED 300,000 is 6% of revenue — above the de minimis limit (the lower of 5% of revenue or AED 5 million). That single fact costs the company its 0% status entirely: instead of the AED 4,700,000 of qualifying income being taxed at 0%, all income falls to the standard rate for this period and the following four. Had non-qualifying income stayed within the limit, the qualifying income would have remained at 0%. Monitoring this threshold is one of the most important tasks for any free zone company — our free zone audit and the QFZP election guide help you track it.
How does the interest limitation work, and what elections exist?
Two points here are widely misunderstood, so it is worth being precise.
General interest limitation. A business’s net interest expenditure is deductible only up to the higher of 30% of EBITDA (earnings before interest, tax, depreciation and amortisation) or a de minimis safe-harbour amount (reported at AED 12 million — confirm the current threshold). Crucially, this applies to all interest, including ordinary bank and third-party loans — not only related-party borrowings. Net interest above the cap is disallowed for the period but can be carried forward to later periods, subject to the same cap.
Connected-person interest. Separately, a specific rule can disallow interest on loans from a connected person where the borrowing funds certain related-party transactions (such as dividends, redemptions or capital contributions) and the main purpose is a Corporate Tax advantage. This sits on top of the general limitation above.
Realisation basis election. Under IFRS, fair-value changes on assets and liabilities flow through profit. For Corporate Tax you can elect the realisation basis, so unrealised gains and losses are excluded from taxable income until the asset is sold or the liability settled. The election generally applies for as long as you hold the relevant assets, so it is a decision to make deliberately with advice.
What computation mistakes trigger FTA audits?
Most Corporate Tax problems come from the same handful of avoidable errors. The table below pairs each with its fix.
| Mistake | Impact | Prevention |
|---|---|---|
| Claiming personal expenses as business deductions | Review + penalty | Keep personal and business accounts fully separate |
| Not adding back FTA penalties | Under-reported income | FTA fines are never deductible |
| Forgetting to elect SBR on the return | Full 9% applied | Actively elect SBR on the EmaraTax return |
| Mixing qualifying and non-qualifying income (QFZP) | Loss of 0% for five years | Track revenue separately by income type |
| No transfer pricing documentation | FTA adjusts related-party pricing | Prepare TP documentation before filing |
| Over-using carried-forward losses | Over-deduction, penalties | Apply the 75% cap each year |
| Missing the entertainment 50% cap | Disallowed deduction | Track entertainment separately |
✅ Computed correctly
- Every add-back and exemption evidenced from the financials
- SBR or QFZP treatment applied and elected where eligible
- Losses capped at 75% and interest within the limit
- Transfer pricing documentation ready before filing
- A defensible return that withstands FTA review
❌ One wrong deduction
- A personal cost or FTA fine left in the deductions
- Under-reported taxable income and a corrected return
- Penalties on the understatement, plus interest
- A missed SBR election taxed at the full 9%
- An FTA review that a clean computation would have avoided
Where related-party transactions exist, transfer pricing documentation is not optional — and once your computation is ready, our filing-deadline guide shows exactly when the return and payment are due.
Key Corporate Tax computation terms explained
| Term | What it means |
|---|---|
| Taxable income | Accounting profit after add-backs, exempt income and loss relief — the figure the 0% / 9% rates apply to. |
| Add-back | A non-deductible expense removed from accounting profit, increasing taxable income (e.g. FTA fines, owner costs). |
| Participation exemption | Exemption for dividends and gains from a 5%+ shareholding held 12 months or more, subject to conditions. |
| Interest limitation | Net interest deductible only up to the higher of 30% of EBITDA or the de minimis safe-harbour amount. |
| De minimis (QFZP) | Non-qualifying revenue must stay under the lower of 5% of total revenue or AED 5,000,000, or 0% status is lost. |
| Small Business Relief | An election treating revenue ≤ AED 3,000,000 as nil taxable income, for periods ending on or before 31 December 2029. |
| DMTT | Domestic Minimum Top-up Tax — a 15% effective rate for large MNE groups (global revenue ≥ EUR 750M). |
Fastlane Tax Team
FTA-registered tax agents preparing UAE Corporate Tax computations and returns for mainland and free zone companies. We compute taxable income, capture every allowable deduction, assess Small Business Relief and QFZP treatment and file on EmaraTax — from AED 249.
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