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Accounting income as the starting point

Applies
FY2024 onwards
Reviewed
Rule
UAE-CT-TI-BASE-2024.1
By

Where does UAE taxable income start?

From the accounting net profit or loss in each Taxable Person's standalone financial statements, adjusted for exempt income, reliefs, deductions and losses.

Per Federal Decree-Law No. 47 of 2022, Article 20, General Rules for Determining Taxable Income

Taxable Income is determined separately for each Taxable Person on the basis of adequate, standalone financial statements, and is the Accounting Income for the Tax Period adjusted — to the extent applicable — for unrealised gains and losses, Exempt Income, reliefs, deductions, transactions with Related Parties and Connected Persons, Tax Loss relief, Qualifying Business Activity incentives, and anything further the Cabinet or the Minister specifies.

This is the spine of the computation: every other stage of this ledger is one of the adjustment heads in Article 20(2), and the figure this rule produces is what the rate is applied to. Where the Decree-Law and the applicable accounting standards conflict, Article 20(7) gives the Decree-Law precedence to that extent.

The adjustment heads

Article 20(2) gives a closed list, in this order. Each is a chapter of the Decree-Law and a stage of this ledger; a nil head is still a head, and this rule prints it.

Accounting Income, adjusted for

  • 20(2)(a) — any unrealised gain or loss under Article 20(3)
  • 20(2)(b) — Exempt Income (Chapter Seven)
  • 20(2)(c) — reliefs (Chapter Eight)
  • 20(2)(d) — deductions (Chapter Nine)
  • 20(2)(e) — transactions with Related Parties and Connected Persons (Chapter Ten)
  • 20(2)(f) — Tax Loss relief (Chapter Eleven)
  • 20(2)(g) — incentives or special reliefs for a Qualifying Business Activity, as the Cabinet specifies
  • 20(2)(h) — income or expenditure not otherwise taken into account, as the Cabinet specifies
  • 20(2)(i) — any other adjustments the Minister specifies

What the article also provides

  • 20(1) — Taxable Income is determined separately for each Taxable Person, on adequate standalone financial statements under accounting standards accepted in the State
  • 20(5) — the Minister may prescribe when a Person may use the cash basis, adjustments to the accounting standards, and a different basis for a Qualifying Business Activity
  • 20(6) — a Taxable Person may apply to the Authority to move from the cash basis to the accrual basis
  • 20(7) — where this Decree-Law and the applicable accounting standards conflict, this Decree-Law prevails to that extent

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must decide and has not decided stops the computation. An undecided input is never read as a no.

  2. 2

    Standalone financial statements

    Article 20(1) makes adequate standalone financial statements the basis on which Taxable Income is determined, not a formality alongside it. Without them there is no figure to compute.

  3. 3

    Accounting Income as adjusted

    The Accounting Income, adjusted for each head of Article 20(2) in the article's order. A head with no figure supplied is carried at nil and shown as nil, so the schedule can be read against the article line by line.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

Accounting profit, exempt dividends and disallowed entertainment

A UAE company with standalone audited accounts reports an accounting profit of AED 12,000,000. It received AED 2,000,000 of dividends from a resident subsidiary, which are Exempt Income, and half of its AED 600,000 entertainment spend is disallowed under Chapter Nine.

Computed

Taxable Income of AED 10,300,000 as computed for FY2026: Accounting Income of AED 12,000,000 adjusted under Article 20(2) for 2 of the nine heads (the remaining 7 carried at nil), based on the figures you supplied. Each head is decided by its own rule; this rule places them in the article's order and sums them.

Workings

Accounting IncomeArticle 20(2) — the starting point, per the standalone financial statements
AED 12,000,000
Unrealised gain or lossArticle 20(2)(a) — none supplied
AED 0
Exempt Income (Chapter Seven)Article 20(2)(b)
(AED 2,000,000)
Reliefs (Chapter Eight)Article 20(2)(c) — none supplied
AED 0
Deductions (Chapter Nine)Article 20(2)(d)
AED 300,000
Related Parties and Connected Persons (Chapter Ten)Article 20(2)(e) — none supplied
AED 0
Tax Loss relief (Chapter Eleven)Article 20(2)(f) — none supplied
AED 0
Qualifying Business Activity incentivesArticle 20(2)(g) — none supplied
AED 0
Income or expenditure specified by the CabinetArticle 20(2)(h) — none supplied
AED 0
Other adjustments specified by the MinisterArticle 20(2)(i) — none supplied
AED 0
Taxable IncomeAccounting Income as adjusted under Article 20(2)
AED 10,300,000

Decided by the accounting income as adjusted

A loss-making period with a transfer pricing adjustment

The same company in a later period reports an accounting loss of AED 4,000,000, with a transfer pricing adjustment of AED 500,000 increasing its income and no other heads.

Computed

Taxable Income of (AED 3,500,000) as computed for FY2026: Accounting Income of (AED 4,000,000) adjusted under Article 20(2) for 1 of the nine heads (the remaining 8 carried at nil), based on the figures you supplied. Each head is decided by its own rule; this rule places them in the article's order and sums them.

Workings

Accounting IncomeArticle 20(2) — the starting point, per the standalone financial statements
(AED 4,000,000)
Unrealised gain or lossArticle 20(2)(a) — none supplied
AED 0
Exempt Income (Chapter Seven)Article 20(2)(b) — none supplied
AED 0
Reliefs (Chapter Eight)Article 20(2)(c) — none supplied
AED 0
Deductions (Chapter Nine)Article 20(2)(d) — none supplied
AED 0
Related Parties and Connected Persons (Chapter Ten)Article 20(2)(e)
AED 500,000
Tax Loss relief (Chapter Eleven)Article 20(2)(f) — none supplied
AED 0
Qualifying Business Activity incentivesArticle 20(2)(g) — none supplied
AED 0
Income or expenditure specified by the CabinetArticle 20(2)(h) — none supplied
AED 0
Other adjustments specified by the MinisterArticle 20(2)(i) — none supplied
AED 0
Taxable IncomeAccounting Income as adjusted under Article 20(2)
(AED 3,500,000)

Decided by the accounting income as adjusted

No standalone financial statements

A branch whose figures exist only inside its head office's consolidated accounts, with nothing prepared on a standalone basis for the period.

Computed

Not computed: Article 20(1) determines Taxable Income on the basis of adequate, standalone financial statements, and you have indicated there are none for this period. What the figure would be requires your determination of the basis first.

Decided by the standalone financial statements

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

2 inputs still need your determination:

  • Are there adequate, standalone financial statements for the period, prepared under accounting standards accepted in the State?
  • What is the Accounting Income for the period?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader