Profit and loss statement: what it means for UAE businesses.

What profit and loss statement means

Also called: Income statement, Statement of profit or loss, P&L.

A profit and loss statement shows the revenue a business earned, the costs it incurred and the resulting profit or loss for a period, usually a month, a quarter or the financial year. It is prepared on the accrual basis, so it records income when earned and costs when incurred, not when cash moves.

In the UAE the annual profit and loss account is required by Article 27 of the Commercial Companies Law, and an LLC's general assembly approves it under Article 94. For Corporate Tax it matters even more. Article 20 of the Corporate Tax Law starts Taxable Income from Accounting Income, defined as the net profit or loss in financial statements prepared under IFRS or, for revenue up to AED 50,000,000, IFRS for SMEs. The tax computation then adds back items the law does not allow, such as fines and half of entertainment spending.

The revenue line also drives several UAE thresholds: AED 3,000,000 for Small Business Relief and the cash basis, and AED 50,000,000 for IFRS for SMEs and the Corporate Tax audit requirement. From 1 January 2027, IFRS 18 replaces IAS 1 and adds new required subtotals.

How it works

• Revenue less cost of sales gives gross profit; operating expenses, finance costs and tax then lead to net profit.
• Accounting Income, the net profit or loss under Article 20 of the Corporate Tax Law, is the starting point for Taxable Income.
• Article 33 disallows fines and penalties, dividends paid to owners, Corporate Tax itself and recoverable input VAT; Article 32 allows only 50% of entertainment spending.
• Gains shown in other comprehensive income that will never pass through profit or loss are added to Taxable Income, according to the FTA's accounting standards guide.
• IFRS 18, effective for annual periods beginning on or after 1 January 2027, requires the subtotals operating profit and profit before financing and income taxes.

Worked example

A Dubai engineering consultancy with revenue above AED 3,000,000 prepares its annual profit and loss statement and then its Corporate Tax computation. Operating expenses include AED 10,000 of traffic fines and AED 40,000 of client entertainment.

Revenue	AED 3,600,000
Cost of sales	AED 2,100,000
Gross profit	AED 1,500,000
Operating expenses	AED 880,000
Accounting net profit	AED 620,000
Add back traffic fines (Article 33)	AED 10,000
Add back 50% of client entertainment (Article 32)	AED 20,000
Taxable Income	AED 650,000
Corporate Tax: 9% on the 275,000 above 375,000	AED 24,750

The profit and loss statement supplies the AED 620,000 starting figure, and two add-backs raise Taxable Income to AED 650,000.

Common mistakes

• Posting VAT into revenue or expenses. For a VAT registered business, output tax and recoverable input tax belong on the balance sheet, not in profit.
• Treating owner drawings or dividends as expenses, which understates profit in the accounts and is disallowed for Corporate Tax.
• Using a cash receipts summary as the profit and loss statement once revenue is above AED 3,000,000, when accrual accounts are required.

The law

• Federal Decree-Law No. 47 of 2022, as amended, Article 1 (definition of Accounting Income), Article 20, Article 32 and Article 33
• Ministerial Decision No. 114 of 2023, Article 2 (cash basis up to AED 3,000,000) and Article 4 (IFRS, and IFRS for SMEs up to AED 50,000,000)
• Federal Decree-Law No. 32 of 2021 on Commercial Companies, Article 27 (Accounts of the Company) and Article 94 (Competencies of the annual general assembly)

Frequently asked questions

Is Corporate Tax charged on the net profit in our profit and loss statement?

Not directly. Net profit is the starting point. Article 20 of the Corporate Tax Law then adjusts it for exempt income, disallowed costs, reliefs and loss relief to reach Taxable Income, and the 0% and 9% rates apply to that figure.

Does IFRS 18 change our Corporate Tax?

IFRS 18 changes how the statement is laid out from 2027, with new subtotals and categories. It does not change the Corporate Tax rules, which still start from net profit or loss.

Related terms

Balance sheet · Taxable income · Accrual basis accounting · Management accounts · IFRS for SMEs. See every term in the UAE tax glossary.

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

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