Taxable Income in Federal Decree-Law No. 47 of 2022 | UAE

Navigating the complexities of tax regulations can be challenging, whether you are an individual or a business owner. Federal Decree-Law No. 47 of 2022 offers a structured approach to calculating taxable income, ensuring clarity and fairness in tax obligations. Here’s a breakdown of how this law simplifies the process of determining taxable income. 

Determining Taxable Income 

Article 20 of the Decree-Law establishes a clear method for calculating taxable income. Everyone’s taxable income is assessed separately based on their financial statements, which must adhere to accepted accounting standards. The taxable income for a given period is derived from the actual income, with several adjustments: 

1. Unrealised Gains or Losses: Profits or losses that have not yet been realized are considered. This ensures that only actual, realized income impacts the taxable amount. 
2. Exempt Income: Certain income types are exempt from taxation. These amounts are excluded from the taxable income calculation, ensuring that not all income is taxed. 
3. Reliefs: Specific relief mechanisms are available, potentially lowering the taxable income to support various economic activities and alleviate financial burdens. 
4. Deductions: Allowable deductions are applied to reduce the taxable income. These deductions help businesses and individuals manage their tax liabilities more effectively. 
5. Transactions with Related Parties: Transactions involving family or related entities are considered in the calculation of taxable income to prevent tax avoidance through related party transactions. 
6. Tax Loss Relief: Businesses experiencing losses can benefit from tax loss relief provisions. These measures support businesses in recovering from financial setbacks by adjusting taxable income accordingly. 
7. Incentives for Qualifying Businesses: Certain businesses may qualify for incentives aimed at promoting economic growth. These incentives can positively impact taxable income by providing financial benefits or relief. 
8. Other Adjustments: The Minister has the authority to make additional adjustments as necessary. This flexibility helps ensure that the calculation of taxable income remains fair and accurate. 

Realisation Basis Election 

For those who maintain their financial records on an accrual basis, there is an option to elect a realisation basis for specific Statement of Financial Position (SFP) and Statement of Comprehensive Income (SOCI) items. This choice allows businesses and individuals to tailor their accounting approach to better align with their financial practices. 

Small Business Relief 

Article 21 introduces Small Business Relief, designed to ease the tax burden on small businesses that meet specific criteria. This provision allows qualifying small enterprises to temporarily forego the consideration of taxable income, supporting their growth and operational sustainability. 

Conclusion 

Federal Decree-Law No. 47 of 2022 provides a streamlined framework for calculating taxable income. By adhering to these guidelines, individuals and businesses can navigate their tax obligations more effectively. The law’s approach reflects the government’s commitment to supporting economic growth and ensuring a straightforward tax calculation process. Understanding these provisions helps manage tax responsibilities with greater clarity and precision, ultimately contributing to a more equitable taxation system. 

Summary

Federal Decree-Law No. 47 of 2022 provides clear guidelines for calculating taxable income in a way that is easy to understand for individuals and businesses alike. According to Article 20, each person’s taxable income is determined separately based on their financial statements following accepted accounting standards. The taxable income for a specific period includes the actual income, adjusted for factors such as unrealised gains or losses, exempt income, reliefs, deductions, and transactions with related parties. The law also allows for a realisation basis election for those keeping track of finances on an accrual basis. 

Disclaimer: The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk.