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Co-Founder & CEO movingo
Editor
Author
Iakov Kukushkin
Copywriter, Journalist
Feb 10, 2026
Calculating income tax provision ensures that your financial statements accurately reflect the true cost of doing business, by matching tax expenses with the period in which profits were earned. This provides transparency to stakeholders and prevents "cash flow shocks" by allowing the company to set aside funds for future tax payments to the Federal Tax Authority (FTA).
In this article, we'll explain how to do this correctly and what little details you need to keep in mind.
In this article, we'll explain how to do this correctly and what little details you need to keep in mind.
- Corporate Tax in the UAE: An overview
- What is income tax provision?
- How to calculate provision for income tax
- Professional support with tax provision calculation
- Tax provision examples
- Provision for income tax in financial reporting
- Income tax provision calculation challenges
- Outsource your accounting and tax provision with movingo
- Tax provision FAQ
Corporate Tax in the UAE: An overview
The UAE's Corporate Tax system is competitive but strict. If your business earns more than AED 375,000, you must pay a 9% tax on that income.
For startups and small businesses, a 0% tax rate on the first AED 375,000 provides some relief. However, Qualifying Free Zone Persons may benefit from a 0% rate on qualifying income, adding a layer of complexity to their tax obligations.
For startups and small businesses, a 0% tax rate on the first AED 375,000 provides some relief. However, Qualifying Free Zone Persons may benefit from a 0% rate on qualifying income, adding a layer of complexity to their tax obligations.
What is income tax provision?
An income tax provision is an estimate of how much a company expects to owe in taxes for the year. It's like a reserve that gets set aside in financial reports.
💡 Think of it this way: Instead of waiting until you write a check to the Federal Tax Authority (FTA), you record the expense in the period when you earn the profit. This way, your net income reflects the "real" cost of doing business.
Sounds complicated? Actually, it's not as difficult as it may seem at first glance. However, there are some nuances in the UAE's taxation system that you should be aware of to avoid fines and other legal troubles. Professional advice from experts who knows the market can be helpful. For example, us.
How to calculate provision for income tax
The calculation bridges the gap between your accounting profit and your taxable profit. Let’s take a closer look:
Accounting profit is the bottom line on your income statement. It's the total revenue you make minus all the explicit business expenses. This is calculated according to accounting standards like IFRS before any taxes or other adjustments.
Taxable income is the final amount used to calculate your tax liability. It is calculated by taking your total income and adjusting it for certain legal "additions" and "subtractions" required by the FTA.
Determine net profit before tax
Begin with the figure from your profit and loss (P&L) statement.
Add back non-deductible expenses
Not all expenses are "tax-deductible". You should add back some things, such as:
- 50% of entertainment expenses.
- Fines and penalties.
- Donations to non-approved charities.
Deduct exempt income
Subtract any income that isn't taxable, such as certain dividends or capital gains.
Account for depreciation differences
Ensure that your reporting is in accordance with FTA and IFRS regulations.
Apply the tax rate
If applicable, subtract the AED 375,000 threshold from the taxable income, then multiply the remainder by 9%.
Professional support with tax provision calculation
Accounting is a crucial aspect of doing business in the UAE. It is also required by law. It must be clear and accurate, and it must comply with all standards. Following all guidelines can help your business avoid serious fines and other problems.
Keeping records yourself can be difficult, and hiring a professional accountant can be expensive (at least AED 9,000). Outsourced accounting services is a good solution. It not only saves money, but also offers a number of benefits:
Keeping records yourself can be difficult, and hiring a professional accountant can be expensive (at least AED 9,000). Outsourced accounting services is a good solution. It not only saves money, but also offers a number of benefits:
-
Tax impact assessment
Determine which of your income streams are taxable. -
Deferred tax analysis
Controlling time discrepancies that affect your future tax obligations. -
FTA filing support
Ensuring your provision matches your final filing to avoid penalties.
Whether you are a mainland LLC, a Free Zone company, or a freelancer, we will ensure that your provisions are accurate and IFRS-compliant.
Tax provision examples
Let's look at this more closely with some specific examples. Let's imagine two companies with different income levels and see how this works. The tax threshold for both companies is AED 375,000.
-
Simple calculation for small business
Imagine a small consultancy firm in Dubai.
Net accounting profit: AED 500,000
Non-deductible penalties: AED 10,000
Taxable income: AED 510,000
Amount subject to tax: AED 135,000
-
Corporate Tax provision for large companies
Imagine a large, multinational retail group based in Abu Dhabi.
Net accounting profit: AED 10,000,000
Entertainment expense adjustment: AED 200,000 (add back 50% of AED 400,000)
Unrealized gain on property: AED 500,000 (Deducted if not yet taxable)
Taxable income: AED 9,700,000
Amount subject to tax: AED 9,325,000
-
Tax provision (9%): AED 12,150
-
Tax Provision (9%): AED 839,250
Let's calculate your tax provision?
Provision for income tax in financial reporting
In your financial statements, the tax provision shows up in two places:
Income statement:
As an "income tax expense," which reduces your net profit.
Balance sheet:
As "Current tax liabilities" (the amount owed for the current year) and potentially "Deferred tax assets / Liabilities" (tax payments that will be made / saved in the future)
Accurate reporting is essential for investors and banks because it demonstrates that your business understands its long-term liabilities.
Income tax provision calculation challenges
When it comes to finances, it’s not always smooth sailing. The main hurdles in the UAE are:
-
Transfer pricing
Making sure that transactions between related parties are at "arm's length” -
Free Zone nuances
Determine if your income is "qualifying" or "non-qualifying.” -
Double taxation treaties
Manage taxes paid in other countries to avoid paying twice. -
Loss carried forward
Apply previous years' losses correctly to reduce current taxable income.
Paying attention to these nuances will help you avoid problems when interacting with the FTA.
Outsource your accounting and tax provision with movingo
All difficulties can be easily overcome with the help of a reliable and experienced consultant who has years of experience working in the UAE market. movingo provides accounting and paperwork services for all kinds of businesses. We've helped companies save over AED 5 million in fines thanks to our great accounting skills at reasonable prices.
Give us a call and let's see what we can do for you.
Tax provision FAQ
No, tax expense is the total reported on the income statement, while the tax provision is the specific, estimated liability set aside for payment to the FTA during that period.
Provision = (Accounting Profit + Add-backs - Deductions) x 9%.
Profits up to AED 375,000 are not subject to taxation. Profits above that amount are taxed at a rate of 9%.
Current tax is what you owe for the current year. Deferred tax accounts for taxes that will be paid or saved in future years due to timing differences in accounting.
Most do not face a flat minimum tax. However, large multinationals with revenues exceeding €750 million will face a 15% domestic minimum top-up tax starting in 2025.
The first AED 375,000 of profit is tax-free. Also, businesses with revenue under AED 3 million may claim Small Business Relief to pay 0% tax.
1. Start with the accounting profit.
2. Adjust for differences in tax law.
3. Apply the 9% rate to the amount that exceeds AED 375,000.
4. Record as a liability.
2. Adjust for differences in tax law.
3. Apply the 9% rate to the amount that exceeds AED 375,000.
4. Record as a liability.
In this case, your provision is AED 0, as the rate for this bracket is 0%.
Even if they qualify for the 0% rate, they must still register, file, and calculate their provision to prove that they meet "Qualifying" status.
The standard rate is 9%. Under the new 2025-2026 global standards, large multinationals with revenues exceeding €750 million are subject to a 15% rate.
Financial statements (audited if revenue exceeds AED 50 million), tax adjustment schedules, a trial balance, and records of non-deductible expenses.
You must add them back to your accounting profit because they cannot be used to reduce your taxable income.
