Worked example: a Dubai trading company, December year end
| Line | AED | Note |
|---|---|---|
| Accounting profit per financial statements | 1,480,000 | Prepared under IFRS |
| Add: client entertainment disallowed | 38,000 | Partial disallowance |
| Add: fines and traffic penalties | 12,000 | Never deductible |
| Add: general provision for doubtful debts | 90,000 | Round-sum provision, not specific |
| Add: owner salary above arm’s length | 220,000 | Drawn 520,000; market rate for the role assessed at 300,000 |
| Add: private proportion of vehicle costs | 18,000 | 40 per cent private use |
| Less: dividend income from a qualifying participation | (95,000) | Participation exemption |
| Less: tax loss brought forward | (178,000) | Within the 75 per cent restriction |
| Taxable income | 1,585,000 | The figure the rates apply to |
| First 375,000 at 0% | 0 | : |
| Remaining 1,210,000 at 9% | 108,900 | : |
| Corporate tax payable | 108,900 | Effective rate 7.4% of accounting profit |
Note what happened. The owner would reasonably have estimated 9 per cent of 1,480,000, or about 133,000. The actual figure is 108,900, lower, but for reasons that only emerge once the adjustments are worked through, and the largest single adjustment increased the liability rather than reducing it.
These figures are illustrative arithmetic for a fictional business, not advice. Your own adjustments will differ.
The detail
The calculation has four stages, and only one of them requires judgement.
Stage one: get accounting profit right. This is not part of the tax calculation so much as its prerequisite. Financial statements prepared under an acceptable framework, from a reconciled ledger, with cut-off tested and the fixed asset register agreed.
Stage two: adjust to taxable income. This is where the work is and where the errors live. Add back disallowed expenditure, remove exempt income, apply transfer pricing where related party transactions were not at arm’s length, deduct brought-forward losses within the 75 per cent restriction.
Stage three: apply the rates. 0 per cent to the first AED 375,000, 9 per cent to the excess. Genuinely simple arithmetic.
Stage four: apply any elections. Small Business Relief, if elected and available, replaces the whole calculation with a treatment of no taxable income for the period.
The reason businesses find this harder than it looks is that they expect the difficulty to be in stage three, and it is entirely in stage two.
The same business under Small Business Relief
Take the example above and change one fact: annual revenue is AED 2.6 million rather than AED 12 million, and it has been below AED 3,000,000 in every previous period.
That business can elect Small Business Relief and be treated as having no taxable income for the period. The liability becomes nil, not through a rate change but because the relief removes the taxable income altogether. No adjustment schedule, no arm’s length assessment of the owner salary, no participation exemption analysis.
Two things follow from that, and they cut in opposite directions.
The first is that for a business under the revenue ceiling, the relief is often worth considerably more than the tax it saves, because it removes the compliance work as well. The second is that it is elected in the return: a business in exactly this position that does not elect is assessed on the full computation above and pays the 108,900.
And it is currently set to expire on 31 December 2026, at which point the full computation returns.
What changes the answer most
Ranked by how much they typically move the number in an owner-managed business:
- Connected person remuneration: usually the largest single adjustment, and the one businesses have most control over if they act before the year end
- Brought-forward losses: can eliminate most of a liability, but only if they were reported when they arose
- Small Business Relief: removes the liability entirely where available, but must be elected
- QFZP status: 0 per cent on qualifying income for free zone companies meeting the conditions
- Provisions: general provisions added back can be a large number in a business with significant receivables
- Exempt income: material for holding structures, negligible for most trading businesses
Note that the first four are decisions or positions rather than arithmetic. The calculation reports them; it does not create them. Which is why the useful work happens before the year end rather than during the return.
Budgeting for the payment
The liability falls due with the return, nine months after the tax period ends, 30 September 2026 for a December year end. There is no separate payment date and no instalment arrangement by default.
For a business in its first year of a real corporate tax liability, that is a cash outflow of a size and timing nobody has planned for. The worked example above produces AED 108,900 payable on a single date, from a business that has been operating for nine months since the period it relates to and has spent the cash.
The practical answer is to estimate the liability during the year rather than discovering it at the return, which requires management accounts good enough to project taxable income roughly. A quarterly estimate that is 20 per cent wrong is far more useful than an exact figure that arrives a fortnight before payment.
Where tax is paid late, Cabinet Decision No. 129 of 2025 applies 14% per annum on overdue tax on the overdue amount from 14 April 2026, a flat rate that replaced the previous compounding model.
The common misunderstanding
- Estimating 9 per cent of profit. A useful sanity check and not a calculation: the adjustments move it in both directions.
- Applying the rate to revenue, which does not enter the computation at all.
- Treating the 0 per cent band as a cliff rather than applying it to the first AED 375,000.
- Forgetting to elect Small Business Relief, which is claimed in the return and removes the whole calculation.
- Deducting losses that were never reported, which is a considerably weaker position.
- Leaving connected person remuneration unassessed, which is usually the largest adjustment.
- Not projecting the liability during the year, and meeting a substantial payment on the filing date.
What to do next
- Close the accounts properly: everything else is built on them.
- Work through the adjustment categories systematically rather than looking for the obvious ones.
- Assess owner remuneration against the market for the role, before the year end if possible.
- Check Small Business Relief eligibility, which may replace the whole exercise.
- Apply the rates: the easy part.
- Project the payment during the year so the date is budgeted rather than survived.
Related questions
Frequently Asked Questions
How do I calculate UAE corporate tax?
Start from accounting profit, adjust it to taxable income by adding back disallowed items and removing exempt income, then apply 0 per cent to the first AED 375,000 and 9 per cent to the rest. The arithmetic is trivial; the adjustment stage is where the work is.
Can I just take 9 per cent of my profit?
As a rough sanity check, yes. As a calculation, no, the adjustments move the figure in both directions. In the worked example above, the estimate would have been about AED 133,000 against an actual AED 108,900.
What is the biggest adjustment in practice?
Connected person remuneration, in most owner-managed businesses. An owner drawing what the business can afford rather than what the role commands creates a disallowance that is frequently the largest single line in the computation.
Does the 0 per cent band apply to every business?
Yes. It applies to the first AED 375,000 of taxable income for every taxable person, not only small ones. A business with AED 10 million of taxable income still pays 0 per cent on its first AED 375,000.
How do losses affect the calculation?
Brought-forward losses are deducted from taxable income, up to 75 per cent of it, with the remainder carried forward again. They must have been reported in the period they arose to be reliably available.
What if we qualify for Small Business Relief?
The whole calculation is replaced. You are treated as having no taxable income for the period. It is elected in the return rather than applied automatically, and it is currently set to expire on 31 December 2026.
When do we pay?
With the return, nine months after the tax period ends, 30 September 2026 for a December year end. There is no separate payment date, which makes it a cash flow event worth projecting during the year rather than discovering at filing.
What if we pay late?
Cabinet Decision No. 129 of 2025 applies 14% per annum on overdue tax on the overdue amount from 14 April 2026. That flat rate replaced the previous monthly compounding model, so guidance still describing compounding is out of date.
Should we estimate the liability during the year?
Yes. A quarterly estimate that is 20 per cent wrong is considerably more useful than an exact figure arriving a fortnight before payment is due. It requires management accounts good enough to project taxable income roughly, which is a lower bar than a full computation.
The adjustments are where the answer comes from, and they are rarely the ones people expect. Send us your last accounts and we will build the computation.
Check my compliance status 058 101 9570
Last reviewed 27 July 2026. Rates, thresholds and deadlines change, the e-invoicing provider deadline has already moved once. Confirm current requirements with the Federal Tax Authority before acting, or ask us to check your position.