In this guide
UAE corporate tax applies 9% only to taxable income above AED 375,000; the first AED 375,000 is taxed at 0%. The rate is marginal, not a cliff, so earning slightly more than AED 375,000 does not tax the whole amount at 9%. Taxable income is accounting profit adjusted for items such as disallowed expenses and reliefs, not simply revenue. Splitting one business into several to multiply the AED 375,000 allowance breaches the General Anti-Abuse Rule (GAAR) and is actively monitored by the Federal Tax Authority.
This is general business information and not accounting or tax advice. Tax treatment depends on the facts, current law and official guidance. Consult the Federal Tax Authority and a qualified adviser.
How the threshold actually works
The structure is simple once the marginal nature is clear. Take taxable income, apply 0% to the portion up to AED 375,000, and 9% to the portion above. A business with AED 500,000 of taxable income pays 9% on AED 125,000, which is AED 11,250, not 9% on the full AED 500,000.
| Taxable income | Taxed at 0% | Taxed at 9% | Tax due |
|---|---|---|---|
| AED 300,000 | AED 300,000 | AED 0 | AED 0 |
| AED 375,000 | AED 375,000 | AED 0 | AED 0 |
| AED 500,000 | AED 375,000 | AED 125,000 | AED 11,250 |
| AED 1,000,000 | AED 375,000 | AED 625,000 | AED 56,250 |
Taxable income is not revenue
The 9% applies to taxable income, which starts from accounting profit and is then adjusted. Some expenses are deductible, some are disallowed or restricted (for example, certain entertainment and interest costs), and reliefs or exemptions may apply. Confirming which adjustments apply usually needs a qualified adviser, because the figure on the management accounts is rarely the taxable figure.
Why splitting a company backfires
Dividing a single business into two entities to claim the AED 375,000 0% band twice is a recognised abuse. The General Anti-Abuse Rule lets the FTA disregard arrangements whose main purpose is a tax advantage that defeats the intent of the law. The likely outcome is nullification of the benefit plus penalties, so artificial fragmentation creates risk rather than saving.
Practical checklist
- Started the calculation from taxable income, not revenue
- Applied 0% to the first AED 375,000 and 9% only above it
- Identified disallowed or restricted expenses with an adviser
- Avoided splitting the business to multiply the threshold
- Documented the basis for each adjustment to taxable income
Questions to take into the next discussion
- What is taxable income after adjustments, not just accounting profit?
- Which expenses are disallowed or restricted for this business?
- Do any reliefs or exemptions change the taxable figure?
- Could any restructuring be challenged under the GAAR?
Common mistakes to avoid
- Treating the 9% as applying to the whole taxable income rather than the excess above AED 375,000.
- Calculating tax on revenue instead of adjusted taxable income.
- Splitting a business to claim the threshold more than once.
- Ignoring disallowed expenses that raise taxable income.
- Assuming the management-accounts profit equals taxable income.
Frequently asked questions
How is UAE corporate tax calculated above AED 375,000?
The 9% rate applies only to taxable income above AED 375,000. The first AED 375,000 is taxed at 0%, so the rate is marginal. For example, AED 500,000 of taxable income produces AED 11,250 of tax.
Is corporate tax charged on revenue or profit?
On taxable income, which is accounting profit adjusted for disallowed expenses, restrictions, reliefs and exemptions, not on gross revenue.
Can I split my company to use the threshold twice?
No. Splitting a business mainly to multiply the AED 375,000 band breaches the General Anti-Abuse Rule and can lead to the benefit being nullified and penalties applied.
Related support from Phoneix Global
Phoneix Global helps owners arrive at a defensible taxable-income figure and avoid GAAR risk. Review our advisory capability or contact the team. See also registration deadlines and penalty waivers and the Small Business Relief expiry.
