Key takeaways
- UAE corporate tax is calculated on taxable income, which starts from a company's accounting net profit or loss and is then adjusted under Article 20 of Federal Decree-Law No. 47 of 2022.
- The adjustments run in a fixed order: unrealised gains and losses (only if elected), exempt income, reliefs, non-deductible expenditure, related-party corrections, and finally tax loss relief.
- A UAE company can deduct only 50% of entertainment expenditure, and fines, bribes, owner distributions and recoverable input VAT are not deductible at all.
- Carried-forward tax losses can offset only 75% of taxable income in a later period, so a company with a loss in one year still pays some corporate tax in a profitable year (as of 31 October 2026).
- Once taxable income is known, corporate tax is 0% on the first AED 375,000 and 9% on the rest for most companies.
How do you get from accounting profit to taxable income?
You start with the net profit or loss in your financial statements for the tax period, then add back or remove items in the order set by Article 20(2) of Federal Decree-Law No. 47 of 2022. The Federal Tax Authority (FTA) sets out the sequence in its Determination of Taxable Income guide.
- Take accounting income from the financial statements for the tax period.
- Adjust for unrealised gains and losses, but only if you made the realisation-basis election.
- Remove exempt income, such as qualifying domestic dividends, and the related exempt losses.
- Apply group or restructuring reliefs, if they apply to you.
- Add back non-deductible expenditure.
- Correct any related-party or connected-person transaction that isn't at market value.
- Apply any adjustments required by Ministerial Decisions.
- Deduct tax losses brought forward, up to the cap.
The result is taxable income, the figure you apply the rate to on your return in EmaraTax.
Which accounting standard does the starting profit have to come from?
The starting profit must come from financial statements prepared under IFRS, IFRS for SMEs, or, for the smallest businesses, a cash-basis statement. The FTA guide ties the choice to revenue.
| Revenue in the tax period | Accounting basis allowed | Source |
|---|---|---|
| Up to AED 3 million | Cash basis (income and expenditure statement), IFRS or IFRS for SMEs | FTA guide, citing Ministerial Decision No. 114 of 2023 |
| Up to AED 50 million | IFRS for SMEs or full IFRS | FTA guide, citing Ministerial Decision No. 114 of 2023 |
| Above AED 50 million | Audited financial statements required | FTA guide, citing Article 54(2) of the Law and Ministerial Decision No. 82 of 2023 |
Figures as of 31 October 2026. If the Decree-Law conflicts with an accounting standard, the Decree-Law wins (Article 20).
What do you add back or take out of accounting profit?
The usual adjustments are expenses the law refuses to recognise and income it exempts; the table lists the ones that catch most SMEs.
| Item | Tax treatment | Basis |
|---|---|---|
| Client entertainment | Only 50% deductible | Article 32 |
| Fines and penalties | Not deductible (damages and contract compensation excepted) | Article 33(2) |
| Bribes and illicit payments | Not deductible | Article 33(3) |
| Dividends and owner distributions | Not deductible | Article 33(4) |
| Corporate tax itself | Not deductible | Article 33(6) |
| Recoverable input VAT | Not deductible | Article 33(7) |
| Domestic dividends received | Exempt income | Article 22 |
| Net interest above AED 12 million | Capped at the greater of 30% of adjusted EBITDA or AED 12 million | Article 30; Ministerial Decision No. 126 of 2023 |
| Related-party payments above market value | Deductible only up to market value | Articles 34 to 36 |
Figures as of 31 October 2026. The general test for any other expense is that it was incurred wholly and exclusively for the business and isn't capital in nature (Article 28). That includes depreciation: you deduct what your accounts charge for assets that qualify, but depreciation on a capitalised item that would have been non-deductible if expensed isn't deductible either (Ministerial Decision No. 134 of 2023, Article 7).
AED 375,000: taxable income up to which UAE corporate tax is charged at 0%, with 9% on taxable income above it. Source: Federal Decree-Law No. 47 of 2022, Article 3(1), as summarised in the FTA Determination of Taxable Income guide, checked 31 October 2026.
How do tax losses and Small Business Relief change the number?
Tax losses reduce taxable income only up to 75% of it, and Small Business Relief removes taxable income altogether for companies with revenue up to AED 3 million.
A tax loss from an earlier period can be carried forward but not back. Losses incurred before corporate tax started, before the person became a taxable person, or on activities that produce exempt income can't be used. A loss can be carried forward if the same owners hold at least 50% from the start of the loss period to the end of the period it is used, or if the same or a similar business continues after an ownership change (FTA guide, sections 4.8 and 4.8.2).
Small Business Relief lets an eligible resident company elect to be treated as having no taxable income for the period (Article 21; Ministerial Decision No. 73 of 2023). On 29 July 2026, Ministerial Decision No. 131 of 2026 amended it so the AED 3 million revenue threshold applies to tax periods ending on or before 31 December 2029, and the Ministry of Finance announced this on 7 August 2026. Electing it means giving up exempt income treatment, reliefs, deductions and loss relief for that period (Article 21). Other conditions apply, so check Ministerial Decision No. 73 of 2023 first.
What does the calculation look like in numbers?
Here is a hypothetical example. Say a mainland trading company, with no Small Business Relief, no brought-forward losses and revenue of AED 20 million, reports accounting profit of AED 1,000,000. Inside that profit sit AED 40,000 of restaurant meals with clients, a AED 10,000 traffic fine on a company vehicle and AED 100,000 of dividends from a UAE-resident company it owns.
| Step | AED |
|---|---|
| Accounting profit | 1,000,000 |
| Add back 50% of client entertainment | 20,000 |
| Add back fine | 10,000 |
| Deduct exempt domestic dividend | (100,000) |
| Taxable income | 930,000 |
| 0% on first 375,000 | 0 |
| 9% on remaining 555,000 | 49,950 |
What most guides don't tell you
Several traps sit between the profit figure and the tax figure, and some are decided in the first tax period.
- The realisation-basis election is easy to lose. An accrual-basis taxpayer can choose to tax gains and losses only when realised, but the election must be made in the first tax period and is generally irrevocable. Not making it in that first period is itself treated as an irrevocable election (FTA guide, section 4.3.1; Ministerial Decision No. 134 of 2023). A company with investments or foreign-currency balances should decide this deliberately.
- Capitalising a bad expense doesn't rescue it. Booking a non-deductible cost as an asset and depreciating it doesn't create a deduction. The FTA guide uses a AED 50,000 capitalised fine to show that a AED 5,000 annual depreciation charge stays non-deductible.
- You can't pick how much loss to use. Brought-forward losses must be used before transferred losses, and if they are below 75% of taxable income, all of them must be used in the current period (FTA guide, section 4.8.1). Leaving some loss "for next year" isn't an option.
- Mixed-purpose costs need a documented split. An expense partly for business and partly private is apportioned on a fair and reasonable basis; if it can't be apportioned, none of it is deductible (FTA guide, section 4.5.4; Article 28(3)). Owner-related spending paid through the company is where it bites first.
If you'd rather not track the filing and payment dates that follow from this calculation by hand, the free UAE compliance calendar lists them for your company.
Which deadlines apply to your company?
Your taxable income feeds a corporate tax return due within nine months of the end of your tax period, while VAT, audit and licence dates run on other clocks. Qawi's free calendar of your company's UAE tax and compliance deadlines, personalised from a few questions and delivered as a PDF and calendar file, puts them in one place: get your UAE compliance calendar.
Frequently asked questions
What expenses are deductible for UAE corporate tax?
An expense is deductible if it was incurred wholly and exclusively for the business and isn't capital in nature (Article 28). Fines, bribes, owner distributions, corporate tax itself and recoverable input VAT are excluded, and client entertainment is limited to 50%.
Is depreciation deductible for UAE corporate tax?
Depreciation charged in your accounts on qualifying business assets is generally deductible. It isn't deductible on a capitalised cost that would have been non-deductible if expensed (Ministerial Decision No. 134 of 2023, Article 7).
Do I need audited financial statements for corporate tax?
Audited statements are required where revenue is above AED 50 million (Article 54(2); Ministerial Decision No. 82 of 2023). Below that, your free zone or bank may still ask for an audit, so check those requirements separately.
Which companies need audited accounts for corporate tax purposes?
Companies with revenue above AED 50 million need audited financial statements for corporate tax. Other companies need audited accounts only if their free zone, a lender or another regulator requires them.
What accounting standard do I need to use for corporate tax?
Use IFRS or, if your revenue is AED 50 million or less, IFRS for SMEs. Companies with revenue up to AED 3 million may use cash-basis accounting (Ministerial Decision No. 114 of 2023).
About Qawi · Qawi is a corporate services firm licensed in the Sharjah Media City (SHAMS) free zone, handling company formation, visas and PRO, bookkeeping, VAT and corporate tax for UAE businesses. Guides are researched from FTA, Ministry of Finance and free zone sources. Qawi on LinkedIn
Sources
- Federal Tax Authority, Corporate Tax Guide: Determination of Taxable Income (CTGDTI1, July 2024)
- Ministry of Finance, Federal Decree-Law No. 47 of 2022 and its amendments (consolidated text, January 2026)
- Ministry of Finance, Ministerial Decision No. 131 of 2026 amending Ministerial Decision No. 73 of 2023 on Small Business Relief
- Ministry of Finance, announcement of the Small Business Relief extension to 31 December 2029 (7 August 2026)
- Ministry of Finance, Corporate Tax in the UAE
Last checked: 31 October 2026
This is general information, not tax or legal advice for your specific situation.