Taxable income: what it means in UAE tax.

What taxable income means

Taxable Income is the figure UAE Corporate Tax is charged on. It does not start from scratch: under Article 20 of the Corporate Tax Law it starts from the accounting net profit or loss in the business's financial statements, and then adjusts for items the law treats differently.

Typical adjustments add back costs the law does not allow, such as fines and half of client entertainment, and take out income the law exempts, such as dividends from other UAE companies. Transfer pricing corrections, interest limits and relief for earlier losses also feed in here.

The rate then applies in two bands. The first AED 375,000 of Taxable Income is taxed at 0% and anything above it at 9%, regardless of how many businesses or activities the Taxable Person runs. A negative result is a Tax Loss, which is explained on the tax loss relief page. Getting Taxable Income right depends on clean, standalone accounts, so bookkeeping quality directly affects the tax figure.

How it works

• The starting point is Accounting Income from standalone financial statements prepared under accounting standards accepted in the UAE (Article 20(1) and (2)).
• Adjustments include unrealised gains and losses, exempt income, reliefs, deductions, related party and connected person transactions, and tax loss relief (Article 20(2)).
• Only 50% of client and business entertainment is deductible (Article 32), and fines, penalties and Corporate Tax itself are not deductible (Article 33).
• The 0% band covers Taxable Income up to AED 375,000 and the 9% rate applies above it (Article 3(1) and Cabinet Decision No. 116 of 2022, Articles 2 and 3).
• Splitting a business artificially to use the 0% band more than once can be treated as an arrangement to obtain a tax advantage (Cabinet Decision No. 116 of 2022, Article 2(2)).

Worked example

A Dubai interior design company reports an accounting net profit of AED 800,000. Its accounts include AED 80,000 of client entertainment, a AED 10,000 traffic and licence fine, and a AED 50,000 dividend from another UAE company it owns shares in.

Accounting net profit	AED 800,000
Add back 50% of entertainment (80,000 x 50%)	AED 40,000
Add back fines	AED 10,000
Less exempt dividend from a UAE company	AED (50,000)
Taxable Income	AED 800,000
Taxed at 0% (first 375,000)	AED 0
Taxed at 9% on 425,000	AED 38,250
Corporate Tax payable	AED 38,250

The adjustments happen to cancel out here, but each one must still be worked through and shown in the return.

Common mistakes

• Filing on the accounting profit with no adjustments, which usually overstates or understates tax.
• Deducting all entertainment, or deducting fines and penalties.
• Applying 9% to the whole profit instead of only the part above AED 375,000.

The law

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Article 20 (General Rules for Determining Taxable Income)
• Federal Decree-Law No. 47 of 2022, Articles 3(1), 22(1), 32 and 33
• Cabinet Decision No. 116 of 2022 on the annual Taxable Income subject to Corporate Tax, Articles 2 and 3

Frequently asked questions

Is the AED 375,000 band the same as Small Business Relief?

No. The 0% band applies to every Taxable Person's first AED 375,000 of Taxable Income. Small Business Relief is a separate election based on Revenue, covered on its own page.

Can Taxable Income differ from profit in the audited accounts?

Yes, almost always. The accounts are the starting point, and the Corporate Tax Law then adds and removes specific items.

Related terms

Tax loss relief · Exempt income · Small Business Relief · Interest deduction limitation · Taxable person. See every term in the UAE tax glossary.

For the full picture, read our guide: Audit Requirements for UAE Companies Under Corporate Tax.

Work it out with our free UAE Corporate Tax calculator.

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