Answer first: UAE corporate tax is 9% of taxable income above AED 375,000. Taxable income starts from accounting profit, then adjusts for non-deductible items, exempt income, and reliefs - so the tax is rarely a flat 9% of net profit. A business that reports AED 500,000 in accounting profit will not necessarily pay AED 11,250 (9% of the amount above AED 375,000). The final taxable income could be higher or lower depending on what was added back, what was excluded, and which reliefs apply. Understanding these adjustments is the core skill in UAE tax compliance.
Official context: UAE corporate tax rules.
Who this is for
UAE founders, SME owners, finance managers, and free zone company teams who need to understand registration, filing, relief, and record obligations before an FTA deadline.
Key takeaways
- The Starting Point: Accounting Profit.
- Add-Backs: What You Cannot Deduct.
- Deductions and Exempt Income.
- Reliefs That Reduce Taxable Income.
UAE considerations
For UAE readers, the practical issue is rarely the headline tax concept alone. The decision depends on the company type, tax period, EmaraTax status, books, relief position, and whether the business operates from a mainland or free zone structure. Use this with Finsera's UAE corporate tax registration and filing page and monthly bookkeeping support so the tax position is tied back to records, not assumptions. Treat this guide as a planning aid, then verify the live position against FTA or Ministry of Finance guidance before filing or paying tax.
Common questions
- How do I calculate my UAE corporate tax step by step? Start with accounting profit from your financial statements. Add back non-deductible expenses (fines, 50% of entertainment, excess interest beyond 30% of EBITDA). Deduct exempt income (qualifying dividends, foreign branch income if elected). Apply available reliefs (Small Business Relief, QFZP). Deduct loss carry-forward (capped at 75% of taxable income). Apply the 0% rate to the first AED 375,000 and 9% to the remainder.
- What is the 50% entertainment deduction rule? Only 50% of entertainment, amusement, or recreation expenses are deductible for corporate tax purposes. The remaining 50% must be added back to accounting profit. This applies regardless of amount - there is no threshold below which the full cost is allowed.
The Starting Point: Accounting Profit
The corporate tax computation begins with the accounting profit or loss as stated in the financial statements, prepared in accordance with IFRS or IFRS for SMEs. The FTA expects these statements to be maintained on an accrual basis and to reconcile to the general ledger.
This starting point matters because every adjustment flows from it. A business with sloppy books - unreconciled bank accounts, missing invoices, personal expenses mixed in - cannot produce a reliable tax computation. The tax return is only as accurate as the underlying accounting.
The pathway is: Accounting Profit -> Adjustments -> Taxable Income -> Tax at 9% above AED 375,000.
Add-Backs: What You Cannot Deduct
Not every expense in the P&L reduces taxable income. Federal Decree-Law No. 47 of 2022 specifies several categories that must be added back - excluded from the tax deduction.
Fines and penalties. All fines and penalties paid to government entities are non-deductible. This includes traffic fines, municipal penalties, and FTA-imposed tax penalties. The rationale is that the tax system should not subsidise non-compliance.
Entertainment expenses. Only 50% of entertainment, amusement, or recreation expenses are deductible. The other half is added back. This applies to client dinners, event hospitality, and similar expenditure. The 50% cap is strict - there is no de minimis exception.
Interest expense - the EBITDA limitation. Net interest expense is deductible up to 30% of EBITDA (earnings before interest, tax, depreciation, and amortisation). Interest above this threshold is added back. This rule, known as the earnings stripping rule, applies to all businesses and is designed to prevent base erosion through excessive intra-group debt.
Bribes and illegal payments. Any payment that constitutes a criminal offence under UAE law is fully non-deductible. This includes explicit bribes and payments that violate anti-corruption laws.
Donations to unapproved entities. Donations are only deductible if made to qualifying public benefit entities listed by the FTA. Donations to other recipients are added back.
Dividends and profit distributions. Amounts distributed to owners are not business expenses and must be added back to accounting profit.
Taxes on income. Any tax on income paid outside the UAE that is not creditable against UAE corporate tax is non-deductible. This prevents double-counting of foreign tax obligations.
Deductions and Exempt Income
Certain items that appear as income in the financial statements are excluded from taxable income, and certain deductions are permitted beyond the normal operating expenses.
Dividend income and participation exemption. Dividends received from a UAE or foreign subsidiary are exempt if the parent holds at least 5% of the subsidiary's shares for at least 12 months, and the subsidiary is subject to tax at a rate of at least 9% or is a qualifying juridical person. This participation exemption removes intra-group dividends from the tax base.
Foreign branch income exemption. A UAE resident company can elect to exempt income from a foreign branch if that branch is subject to tax in the foreign jurisdiction at a rate of at least 9%. The election is made in the tax return and is irrevocable for that branch.
Capital gains on qualifying participations. Gains from the disposal of a qualifying participation (meeting the same 5% / 12-month conditions) are also exempt. This aligns with the dividend exemption and prevents tax from discouraging group restructuring.
Loss carry-forward. Tax losses can be carried forward indefinitely and set against up to 75% of taxable income in future periods. This 75% cap means a business with AED 100,000 in taxable income can only use AED 75,000 of brought-forward losses in that year. The remaining losses continue to carry forward.
Group relief. Resident UAE companies in the same group (common ownership of at least 75%) can transfer tax losses between group members, provided both are subject to corporate tax and use the same financial year. This prevents profitable group companies from paying tax while loss-making siblings waste their losses.
Reliefs That Reduce Taxable Income
Beyond the standard adjustments, two key reliefs apply to specific categories of taxpayer:
Small Business Relief. A business with revenue at or below AED 3 million can elect Small Business Relief for tax periods ending on or before 31 December 2026. The election reduces taxable income to zero, resulting in no tax payable. The business must still register and file a return; the election is made within the return itself. This relief is not available to Qualifying Free Zone Persons or members of multinational enterprise groups.
Qualifying Free Zone Person relief. A free zone company that meets the QFZP conditions - adequate substance, qualifying income, arm's-length pricing, and the de minimis test - pays 0% on qualifying income and 9% only on non-qualifying income. The de minimis rule requires that non-qualifying revenue does not exceed the lower of 5% of total revenue or AED 5 million.
Worked Example: From P&L to Tax Payable
Consider a Dubai mainland trading company with the following simplified figures for the year ended 31 December 2025:
| Line Item | Amount (AED) |
|---|---|
| Revenue | 2,500,000 |
| Cost of goods sold | (1,400,000) |
| Gross profit | 1,100,000 |
| Operating expenses | (450,000) |
| Entertainment (within op. exp.) | (40,000) |
| Interest expense | (60,000) |
| FTA fines paid | (15,000) |
| Depreciation | (50,000) |
| Accounting profit | 525,000 |
Now apply the corporate tax adjustments:
| Adjustment | Amount (AED) | Note |
|---|---|---|
| Accounting profit | 525,000 | Starting point |
| Add: FTA fines (non-deductible) | +15,000 | Fully non-deductible |
| Add: Entertainment (50% capped) | +20,000 | Half of AED 40,000 added back |
| Add: Excess interest (if any) | +0 | AED 60k interest; 30% of EBITDA = AED 187,500; no excess |
| Less: Dividend income | 0 | None in this example |
| Less: Loss carry-forward used | (75,000) | Capped at 75% of taxable income before losses |
| Taxable income | 485,000 |
Tax computation:
| Component | Amount (AED) |
|---|---|
| Taxable income | 485,000 |
| 0% band | (375,000) |
| Amount taxed at 9% | 110,000 |
| Corporate tax payable | 9,900 |
Without the adjustments, a naive calculation (9% of AED 150,000 - the amount above AED 375,000 from the raw accounting profit) would yield AED 13,500. The actual tax is AED 9,900 because the loss carry-forward reduced taxable income significantly, while the fines and entertainment add-backs partially offset that benefit. This AED 3,600 difference illustrates why adjustments matter.
Why a Financial Model Helps
Tax computation is not a once-a-year exercise. A financial model that incorporates the 9% rate, the AED 375,000 threshold, the 50% entertainment cap, the interest limitation, and loss carry-forward logic allows a business to forecast its tax liability quarterly. This informs cash planning, dividend policy, and timing of capital expenditure.
A model that stops at EBITDA and ignores corporate tax produces an overstated cash position. For a business with AED 1 million in taxable income, the 9% liability is AED 56,250 after the 0% band - a material cash outflow that should appear in every forecast.
Read next: See how financial modeling supports growth planning and why building tax into your forecast changes capital decisions.
Related Finsera guides
Decision checklist
- The Starting Point: Accounting Profit
- Add-Backs: What You Cannot Deduct
- Deductions and Exempt Income
- Reliefs That Reduce Taxable Income
