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Determination of Taxable Income – CT Guide CTGDTI1

Determination of Taxable Income – CT Guide CTGDTI1

by | Aug 1, 2024 | Corporate Tax

Who Should Read This Guide?

Anyone who needs to understand how to determine taxable income and calculate corporate tax payable will find this guide useful. It should be read alongside the Corporate Tax Law, implementing decisions, and other guidance from the Federal Tax Authority (FTA).

Key Concepts in Determining Taxable Income

  1. Starting Point: Taxable income determination begins with accounting income, which is the net profit or loss reported in financial statements prepared per IFRS or IFRS for SMEs.
  2. Adjustments: Adjustments to accounting income are necessary to calculate taxable income. These include unrealized gains/losses, exempt income, non-deductible expenditure, related party transactions, and other specific adjustments as per Ministerial Decisions.
  3. Tax Rates: Corporate tax rates are 0% on taxable income up to AED 375,000 and 9% on amounts exceeding AED 375,000. Qualifying Free Zone Persons may have different rates.

Key Adjustments to Accounting Income

  • Unrealized Gains and Losses: Businesses must include unrealized gains and losses in taxable income unless they elect to use the realization basis.
  • Exempt Income: Certain types of income, like dividends from a UAE resident company, are exempt from corporate tax.
  • Deductible and Non-Deductible Expenditure: Expenses must be wholly and exclusively incurred for business purposes and not capital in nature to be deductible.

Specific Rules for Deductible Expenses

  • Employment-Related Expenses: Generally deductible if they are reasonable and not excessive.
  • Pre-Incorporation or Pre-Trade Expenses: Deductible if incurred wholly and exclusively for business purposes and not capital in nature.
  • Non-Deductible Expenses: Include donations to non-qualifying entities, fines and penalties, and bribes.

Interest Deduction Limitation Rules

Specific rules limit the deduction of interest expenses to prevent excessive deductions.

Tax Loss Relief

Tax losses can be carried forward and used to offset future taxable income, subject to certain limitations.

Practical Examples and Case Studies

The guide includes case studies illustrating the application of these principles to real-world scenarios, such as deductible and non-deductible expenditure, interest expenditure, tax loss relief, and more.

Understanding the determination of taxable income and the calculation of corporate tax payable is essential for compliance with the UAE’s Corporate Tax Law. This guide provides a comprehensive overview to assist businesses in navigating these requirements effectively.

Source: Determination of Taxable Income – Corporate Tax Guide | CTGDTI1 July 2024