Corporate Tax Calculation: Step-by-Step Guide with Real Examples
Learn exactly how to calculate corporate tax in UAE with real examples. Master tax calculations for different business scenarios and optimize your tax position.
Corporate Tax Calculation: Step-by-Step Guide with Real Examples
Corporate tax calculation mistakes can cost your business thousands of dirhams. This practical guide shows you exactly how to calculate corporate tax correctly with real examples you can apply to your business immediately.
Basic Corporate Tax Formula
Taxable Income = Revenue - Deductible Expenses
Corporate Tax = Taxable Income × Tax Rate
Corporate Tax Rates 2025
- 0% Rate: Taxable income up to AED 375,000
- 9% Rate: Taxable income above AED 375,000
Example 1: Basic Corporate Tax Calculation
Scenario: Small Trading Company
Revenue: AED 500,000
Deductible Expenses: AED 300,000
Taxable Income: AED 500,000 - AED 300,000 = AED 200,000
Tax Calculation:
- First AED 375,000: AED 200,000 × 0% = AED 0
- Above AED 375,000: AED 0 (income is below threshold)
Total Corporate Tax: AED 0
💡 Result: No corporate tax due (income below AED 375,000 threshold)
Example 2: Corporate Tax Above Threshold
Scenario: Medium Manufacturing Company
Revenue: AED 2,000,000
Deductible Expenses: AED 1,200,000
Taxable Income: AED 2,000,000 - AED 1,200,000 = AED 800,000
Tax Calculation:
- First AED 375,000: AED 375,000 × 0% = AED 0
- Above AED 375,000: (AED 800,000 - AED 375,000) × 9% = AED 425,000 × 9% = AED 38,250
Total Corporate Tax: AED 0 + AED 38,250 = AED 38,250
💡 Result: AED 38,250 corporate tax due
Example 3: Small Business Relief
Scenario: Small Business with Relief
Revenue: AED 2,500,000 (below AED 3 million threshold)
Deductible Expenses: AED 1,800,000
Taxable Income: AED 2,500,000 - AED 1,800,000 = AED 700,000
Small Business Relief: 0% tax rate (revenue below AED 3 million)
Tax Calculation: AED 700,000 × 0% = AED 0
Total Corporate Tax: AED 0
💡 Result: No corporate tax due (small business relief applies)
Example 4: Free Zone Business
Scenario: Free Zone Company
Qualifying Income (0%): AED 1,500,000
Non-Qualifying Income (9%): AED 500,000
Total Revenue: AED 2,000,000
Deductible Expenses: AED 1,200,000
Expense Allocation:
- Qualifying activities: 75% of expenses = AED 900,000
- Non-qualifying activities: 25% of expenses = AED 300,000
Tax Calculation:
- Qualifying taxable income: AED 1,500,000 - AED 900,000 = AED 600,000 × 0% = AED 0
- Non-qualifying taxable income: AED 500,000 - AED 300,000 = AED 200,000 × 9% = AED 18,000
Total Corporate Tax: AED 0 + AED 18,000 = AED 18,000
💡 Result: AED 18,000 corporate tax due (only on non-qualifying income)
Deductible Expenses Guide
✅ Fully Deductible Expenses
- Cost of Goods Sold: Direct costs of producing goods
- Operating Expenses: Rent, utilities, salaries, insurance
- Professional Services: Legal, accounting, consulting fees
- Marketing Expenses: Advertising, promotion costs
- Technology Costs: Software, IT services, equipment
- Travel Expenses: Business travel and accommodation
❌ Non-Deductible Expenses
- Personal Expenses: Personal purchases and entertainment
- Penalties and Fines: Government penalties and fines
- Dividends: Dividends paid to shareholders
- Capital Expenditure: Depreciation is claimed instead
Depreciation and Capital Allowances
Example: Equipment Depreciation
Equipment Purchase: AED 100,000
Useful Life: 5 years
Annual Depreciation: AED 100,000 ÷ 5 = AED 20,000
Deductible Expense: AED 20,000 per year
💡 Note: Only depreciation is deductible, not the full purchase price
Common Calculation Mistakes
❌ Mistake 1: Including Non-Deductible Expenses
Wrong: Including personal expenses in deductible expenses
Correct: Only include business-related expenses
❌ Mistake 2: Incorrect Threshold Application
Wrong: Applying 9% to entire income
Correct: Apply 0% to first AED 375,000, 9% to remainder
❌ Mistake 3: Ignoring Small Business Relief
Wrong: Not checking small business relief eligibility
Correct: Check if revenue is below AED 3 million
Corporate Tax Calculation Checklist
- ✅ Calculate total revenue accurately
- ✅ Identify all deductible expenses
- ✅ Exclude non-deductible expenses
- ✅ Apply correct depreciation
- ✅ Check small business relief eligibility
- ✅ Apply correct tax rates
- ✅ Double-check calculations
Tax Planning Strategies
💰 Maximize Deductible Expenses
- Timing: Incur expenses in current year
- Documentation: Keep proper records
- Business Purpose: Ensure all expenses are business-related
- Professional Advice: Seek expert guidance
📊 Optimize Tax Position
- Small Business Relief: Stay below AED 3 million if beneficial
- Free Zone Benefits: Maximize qualifying income
- Expense Timing: Plan expense timing strategically
- Group Relief: Consider group relief if applicable
When to Seek Professional Help
- Complex business structures
- Multiple business activities
- Free zone operations
- Large amounts involved
- Uncertain about deductions
- Audit or investigation
Conclusion
Accurate corporate tax calculation is crucial for compliance and optimizing your tax position. By following these examples and best practices, you can ensure your corporate tax calculations are correct and minimize your tax burden.
Need help with corporate tax calculations? Our expert team can review your calculations, identify optimization opportunities, and ensure accuracy. Contact us today for professional corporate tax calculation support.