Tax Case Study – Professional Services Firm

Introduction

The UAE Corporate Tax regime, effective from 1 June 2023, applies to businesses across all sectors, including trading companies. Trading businesses—whether wholesale, retail, or import-export—form a significant part of the UAE economy.

To help businesses understand how the Corporate Tax Law works in practice, this article presents a detailed case study of a trading business, covering step-by-step tax computation, adjustments, and key compliance considerations.

Case Study: ABC Trading LLC

Company Profile:

Entity: ABC Trading LLC (Mainland UAE)

Business Activity: Import and wholesale of electronics

Financial Year: 1 January 2024 – 31 December 2024

Revenue: AED 12,000,000

Cost of Sales: AED 8,000,000

Operating Expenses: AED 2,200,000

Net Accounting Profit before Tax: AED 1,800,000

Step 1: Adjusting Accounting Profit for Tax Purposes

Start with accounting profit and make adjustments as per the UAE Corporate Tax Law.

Net Profit (before tax): AED 1,800,000

Add back (non-deductible expenses):

Entertainment expenses (50% disallowed): AED 30,000

Fines & penalties: AED 10,000

Donations to non-approved charities: AED 20,000

Total Add-Backs: AED 60,000

Adjusted Profit (Subtotal): AED 1,860,000

Less (exempt/relieved income):

Dividend income from UAE subsidiary: AED 120,000

Foreign branch profit (exempt under conditions): AED 100,000

Total Deductions: AED 220,000

Taxable Income = AED 1,640,000

Step 2: Applying Corporate Tax Rates

0% on first AED 375,000 = AED 0

9% on balance AED 1,265,000 = AED 113,850

Corporate Tax Payable = AED 113,850

Step 3: Special Considerations for Trading Businesses

Inventory Valuation

Trading businesses must follow IFRS-based valuation (cost or NRV, whichever is lower).

Any unrealized gains/losses may require adjustments.

Related Party Transactions

Purchases from group companies must comply with Transfer Pricing rules.

Benchmarking studies may be needed to support arm’s length pricing.

Foreign Tax Credits

If withholding tax is paid abroad (e.g., on imports), it may be credited against UAE tax liability (subject to limits).

Tax Loss Utilization

If ABC Trading LLC had tax losses in previous years, up to 75% of current taxable income could be offset.

Group Relief

If ABC is part of a group (≥75% ownership), tax losses may be shared among group entities.

Compliance Checklist for Trading Companies

Corporate Tax Registration with FTA (mandatory).

Maintain Proper Books of Accounts as per IFRS.

Prepare Transfer Pricing Documentation (Local File & Master File, if thresholds met).

File Annual Corporate Tax Return within 9 months of year-end.

Align ESR (Economic Substance Regulations) with business activities.

Conclusion

Trading businesses in the UAE are directly impacted by the new Corporate Tax regime. As the case study of ABC Trading LLC shows, even a profitable business with AED 1.8 million accounting profit may end up with a tax liability of around AED 113,850 after adjustments and exemptions.

Early preparation, proper accounting, and compliance with TP and ESR rules are essential for smooth tax filing and avoiding penalties.

✍️ Prepared by Sheikh Anwar Accounting and Auditing LLC – Registered Auditor with the Ministry of Economy (Auditor Entry No. 5817, Company Entry No. LC4695-01). We specialize in Corporate Tax, Transfer Pricing, VAT, and AML Compliance, helping UAE trading businesses manage their tax obligations effectively.

📧 Contact us: info@sa-auditors.com

🌐 Visit us: www.sa-auditors.com