How UAE Corporate Tax is computed: Small Business Relief, QFZP, the 0% and 9% bands
UAE Corporate Tax under Federal Decree-Law No. 47 of 2022 is computed in a fixed order: start from the accounting profit, strip out exempt income, add back what is not deductible, apply the interest cap, use losses, then apply the rates. This guide follows that order and names the article or decision behind each step. It is not tax advice; the Decree-Law, the Cabinet and Ministerial Decisions and the FTA guides control.
The two rates: 0% to AED 375,000 and 9% above
Corporate Tax is charged at 0% on the part of Taxable Income that does not exceed AED 375,000 and at 9% on the part above it (Federal Decree-Law No. 47 of 2022, Article 3(1); the threshold is set by Cabinet Decision No. 116 of 2022). The 0% band is not an exemption for small companies; it is the first AED 375,000 of every Taxable Person's Taxable Income. A company with Taxable Income of AED 400,000 pays 9% on AED 25,000, which is AED 2,250.
A Qualifying Free Zone Person is taxed differently: 0% on Qualifying Income and 9% on Taxable Income that is not Qualifying Income (Federal Decree-Law No. 47 of 2022, Article 3(2)). The AED 375,000 band does not apply on that route.
Small Business Relief: the AED 3,000,000 revenue test
Small Business Relief lets an eligible Resident Person elect to be treated as having no Taxable Income for a Tax Period (Federal Decree-Law No. 47 of 2022, Article 21). The conditions come from Ministerial Decision No. 73 of 2023 and the FTA guide CTGSBR1:
- Resident Person only (MD 73/2023 Art 2).
- Revenue not above AED 3,000,000 in the current Tax Period and in every earlier Tax Period. Once Revenue has exceeded AED 3,000,000 in any Tax Period, the relief is lost for all later periods, even if Revenue falls back below the line (MD 73/2023 Art 2(3)).
- Not a constituent company of a multinational group with consolidated revenue above AED 3.15 billion (MD 73/2023 Art 3(1)).
- Not a Qualifying Free Zone Person.
Revenue means gross income under the applicable accounting standards, not profit (Article 21 and MD 73/2023 Art 2(4)). A company with AED 2,900,000 of sales and a loss can elect; one with AED 3,100,000 of fees and a small profit cannot.
The election is made per Tax Period. While it applies, Taxable Income is treated as nil, and no Tax Losses or disallowed interest accrue for that period to be carried forward (MD 73/2023 Art 4). That trade-off matters for a loss-making company: electing relief in a loss year means the loss is not banked.
The relief was originally limited to Tax Periods ending on or before 31 December 2026. The Ministry of Finance announced on 7 August 2026 that Ministerial Decision No. 131 of 2026 extends it to Tax Periods ending on or before 31 December 2029.
Qualifying Free Zone Person and the de minimis test
A Free Zone Person that meets all the conditions in Article 18(1), in summary adequate substance in the free zone, audited financial statements, compliance with transfer pricing rules and no election to be taxed at the standard rates, is a Qualifying Free Zone Person (Federal Decree-Law No. 47 of 2022, Article 18(1)). Qualifying Income is defined in Cabinet Decision No. 55 of 2023.
The de minimis test decides whether a small amount of non-qualifying activity breaks the status. Non-qualifying Revenue in the period must not exceed the lower of 5% of total Revenue and AED 5,000,000 (Ministerial Decision No. 139 of 2023, Art 4). A free zone company with AED 40,000,000 of Revenue may have up to AED 2,000,000 of non-qualifying Revenue; one with AED 200,000,000 of Revenue is capped at AED 5,000,000, not AED 10,000,000. Fail any Article 18(1) condition or the de minimis test and the standard 0% and 9% computation applies to everything.
Whether substance and transfer pricing conditions are met is a matter of fact, not arithmetic.
The computation order under Article 20(2)
Taxable Income starts from Accounting Income, the net profit or loss before tax in the financial statements, and is adjusted in the order Article 20(2) lists (Federal Decree-Law No. 47 of 2022, Article 20(2)).
| Step | What happens | Basis |
|---|---|---|
| Start | Accounting Income (net profit or loss before tax) | Article 20(2) |
| Less | Exempt dividends from UAE resident juridical persons | Article 22(1) |
| Less | Participation Exemption income | Article 23 |
| Less | Other exempt income, such as a Foreign Permanent Establishment election | Articles 22 and 24 |
| Add | 50% of entertainment, amusement or recreation expenditure | Article 32(1) |
| Add | Fines and penalties, other than compensation for damages | Article 33(2) |
| Add | Donations to entities that are not Qualifying Public Benefit Entities | Article 33(1) |
| Add | Distributions to owners, Corporate Tax booked, recoverable input VAT, foreign income tax | Article 33(4), (6), (7), (8) |
| Add | Expenditure not for the Business or incurred in deriving Exempt Income | Article 28(2)(a), (b) |
| Add | Net Interest Expenditure disallowed this period | Article 30 |
| Less | Tax Loss relief, at most 75% of Taxable Income before relief | Article 37(2) |
| Equals | Taxable Income | Article 20 |
| Tax | 0% to AED 375,000, 9% above | Article 3(1), Cabinet Decision No. 116 of 2022 |
| Less | Foreign Tax Credit, capped at the tax due on that income | Article 47(2) |
| Equals | Corporate Tax Payable | Article 48 |
Exempt income
Dividends and profit distributions received from a UAE resident juridical person are exempt without conditions (Federal Decree-Law No. 47 of 2022, Article 22(1)). Income from a Participating Interest is exempt where the Article 23 conditions are met, in summary an ownership interest of 5% or more held for 12 months in an entity subject to tax at 9% or more (Article 23). A Resident Person may elect to exempt the income of a Foreign Permanent Establishment (Article 24). Expenditure incurred in deriving Exempt Income is not deductible (Article 28(2)(b)).
What is not deductible
Expenditure is deductible only if incurred wholly and exclusively for the Business (Federal Decree-Law No. 47 of 2022, Article 28). Article 32 allows 50% of entertainment, amusement or recreation expenditure. Article 33 lists outright non-deductibles: donations to non-qualifying entities (33(1)), fines and penalties other than compensation for damages (33(2)), dividends and distributions to owners (33(4)), Corporate Tax itself (33(6)), recoverable input VAT (33(7)) and foreign income tax (33(8)). Whether a given expense is wholly and exclusively for the Business is a judgement call.
The interest limitation
Net Interest Expenditure, meaning interest expense less interest income plus any disallowed amount brought forward, is deductible up to 30% of EBITDA, where EBITDA is Accounting Income plus net interest and depreciation and amortisation, excluding Exempt Income (Federal Decree-Law No. 47 of 2022, Article 30(1) and 30(2)). Two things switch the rule off: Net Interest Expenditure of AED 12,000,000 or less in the period, the safe harbour in Ministerial Decision No. 126 of 2023, Art 8 (Article 30(3)); and being a bank, an insurance provider or a natural person (Article 30(6)).
Disallowed interest is carried forward for up to 10 Tax Periods and used in the order incurred, within the same 30% cap (Article 30(4)). For most small companies the AED 12,000,000 safe harbour means the rule never bites.
Tax Losses
A Tax Loss can be set against Taxable Income of later periods, but the offset in any one period is capped at 75% of Taxable Income before the relief (Federal Decree-Law No. 47 of 2022, Article 37(2)). Only losses incurred after Corporate Tax commenced count (Article 37(3)). A current-period loss is added to the carry-forward. Nothing accrues in a period for which Small Business Relief is elected (MD 73/2023 Art 4).
Foreign Tax Credit, payment and the filing deadline
Foreign tax paid on income that is also taxable in the UAE is credited against Corporate Tax, capped at the Corporate Tax due on that income (Federal Decree-Law No. 47 of 2022, Article 47(2)). Corporate Tax Payable is what remains after credits (Article 48).
The Tax Return and payment are due within nine months of the end of the Tax Period (Articles 48 and 53). For a calendar-year company that is 30 September of the following year. Late registration carries a fixed penalty of AED 10,000 (Cabinet Decision No. 10 of 2024, amending Cabinet Decision No. 75 of 2023).
A worked example
The workbook's illustrative inputs: a Resident trading company with Revenue of AED 2,400,000, Accounting Income of AED 520,000, AED 30,000 of exempt UAE dividends, AED 40,000 of entertainment, AED 8,000 of fines, AED 5,000 of non-qualifying donations, AED 6,000 of non-business expenditure, interest expense of AED 150,000 against AED 10,000 of interest income, and AED 120,000 of Tax Losses brought forward.
Revenue is below AED 3,000,000, so the company may elect Small Business Relief. If it does, Taxable Income is nil and Corporate Tax is nil; the AED 120,000 of losses stays parked and does not grow.
If it does not elect: Accounting Income 520,000, less dividends 30,000, add 50% of entertainment 20,000, add fines 8,000, add donations 5,000, add non-business expenditure 6,000, gives AED 529,000. Net Interest Expenditure of AED 140,000 is under the AED 12,000,000 safe harbour, so nothing is disallowed. Tax Loss relief is the lower of AED 120,000 and 75% of 529,000, so the full AED 120,000, leaving Taxable Income of AED 409,000. Tax is 0% on AED 375,000 and 9% on AED 34,000: AED 3,060. That is 0.6% of Accounting Income.
What this guide leaves out
Transfer pricing adjustments (Chapter Ten), Tax Groups (Article 40), Business Restructuring Relief (Article 27) and the Domestic Minimum Top-up Tax for large multinational groups are outside this guide and outside the workbook below.
The tool that does this
The UAE Corporate Tax Computation Workbook ($29, /uae-corporate-tax/) takes the inputs above on one sheet and runs the Small Business Relief test, the QFZP de minimis test and the full Article 20(2) computation to Corporate Tax Payable, with the article or decision cited on every line, the carry-forwards for next period and the filing date computed from the period end. Live formulas, no macros, no locked cells; works in Excel and Google Sheets.
The free UAE Corporate Tax calculator runs the same computation for one Tax Period in your browser. Nothing leaves your browser.
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