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Chapter 3: Accounting Profit vs. Taxable Profit | UAE Corporate Tax Masterclass. — Transcript

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0:00Welcome back everyone uh to the third
0:03chapter. Today what we are going to
0:05discuss is the difference between
0:07accounting profit and uh tax profit.
0:11First we will discuss what is accounting
0:13profit and u uh how we will derive from
0:17accounting profit to tax profit. This is
0:20what we are going to discuss in the
0:22today's session. Before starting let me
0:25give you a very broad definition of
0:28corporate tax. And we will break it down
0:32uh the definition which will cover the
0:35entire tax laws and regulation and uh
0:38once we understood the definitions
0:42each concepts what we are discussing
0:44then we can you can make sure that you
0:47have a good grip on the UA corporate tax
0:49law. Now how I'm going to define
0:52corporate tax? Corporate tax is
0:56payable
0:59on
1:01taxable income.
1:06Corporate tax is payable on taxable
1:08income
1:10by taxable persons
1:16by taxable person according to the
1:22tax period
1:28as per the
1:30prescribed tax rate.
1:34prescribed tax rate.
1:37Now from this definition we are going to
1:40pick four concepts. First one is taxable
1:43income. Second one is taxable person.
1:47Third one is tax period. Fourth one is
1:50tax rate.
1:53This is what the definition of corporate
1:55tax means any business who is paying
1:58corporate tax on their taxable income.
2:01Who will pay uh corporate tax on taxable
2:04income? Taxable person. Taxable person
2:06means who is liable to pay corporate
2:09tax. And
2:12on what basis they are going to pay?
2:14They are going to pay or they are going
2:16to calculate their corporate tax
2:19according to the tax period. Every
2:21business has a particular tax period and
2:25on what what basis or what rate they are
2:28going to use as per the prescribed tax
2:30rate. This is the whole uh four
2:34concepts. Now out of this four concepts
2:37we will revisit again on this definition
2:39as and when we discuss each concepts
2:42what we have discussed uh right now in
2:44the definition.
2:46Now let's take first taxable income.
2:54What is taxable income? Taxable income
2:56means the income where a business or a
3:00company should pay corporate tax in UAE.
3:05That means
3:08a business when they make their year end
3:10uh like you know accounting how they
3:12will be doing accounting obviously they
3:14are going to calculate their revenue
3:18and they are going to minus their
3:20expense and they will get profit.
3:27This profit is called accounting profit
3:34which you all know like how uh like you
3:36know when we are making the profit and
3:37loss account as you all know the taxes
3:41applicable on businesses in general it
3:43is 375,000 dhams 0%age and uh above
3:49375,000 dhams 9%age
3:54is this 9%age tax or the uh 0% threshold
3:59is calculating based on the accounting
4:01profit. Answer is no. It is calculating
4:05based on the taxable income. Now we need
4:09to derive from our profit and loss
4:12account balance. How much is our taxable
4:15income? How it is getting derived? That
4:18is what we are going to discuss in
4:20today's session.
4:23First let me give an understanding to
4:25you. There is a ministerial decision
4:27which is ministerial decision 114 of
4:312023
4:34and this particular ministerial decision
4:36explained which accounting standard
4:39every business should follow in UAE for
4:42the corporate tax purpose. Now this
4:45ministerial decision explained that UAE
4:48is following the accounting standard
4:50which is IFRS.
4:53What is FRS? It is a reporting standard
4:57which is called
4:59international
5:01financial
5:03reporting standard.
5:09International financial reporting
5:10standard. It is nothing but uh a
5:13standard in which the business should
5:16prepare their profit and loss account.
5:18Most of the countries in the world
5:20following IFRS as their accounting
5:23standard. There are deviations also. If
5:25you take a country like US, US is
5:28following a different accounting
5:29standard called US GAAP. India is
5:32following accounting standard which is
5:34IND as in India it is
5:39INS Indian accounting standard. US it is
5:43US GAP.
5:47However, most of the countries in the
5:49world are following IFRS.
5:53IFRSC is explaining like when you are
5:55dealing with your financial statement
5:58how you need to book certain items not
6:01not certain items all the items. Now for
6:03example I will give give couple of uh
6:06IFRS standards. IFRS 15 is talking when
6:11a business get revenue how the revenue
6:13should be booked on what basis the
6:16revenue should be booked they define
6:18five-step model uh and in the each step
6:21we need to understand identify the
6:22contract identify what you have
6:24committed uh to your customer then uh
6:28break it down then as and when you
6:30fulfill your obligation to your customer
6:33you need to book revenue this is what
6:35explained in IFRS uh 15 there is an
6:38accounting standard IAS2.
6:42I2 is talking about inventory. If a
6:46business has inventory stock how they
6:49need to book it is explained they need
6:51to book cost or net realizable value
6:56whichever is lower
7:00whichever is lower. So, IFRS is nothing
7:03but a reporting standard which a
7:06business should prepare their profit and
7:08loss account and balance uh balance
7:10sheet. And through ministerial decision
7:12114 of 2023, UAE ministry of finance
7:16clarified that in UAE business should
7:19follow IFRS as the accounting standard.
7:24Further in ministerial decision it is
7:26explained that if a business is making
7:30above
7:3250 million a in a year as a revenue
7:39they should follow IFRS
7:41full IFRS
7:45then if a business who is making below
7:4950 million a in revenue they can follow
7:53IFRS forme.
7:57It's nothing but a simpler version of
8:00IFRS
8:01um like you know it's uh IFRS itself
8:04when uh it cannot be maybe not able to
8:07follow by small businesses. So there is
8:09a simpler version of IFRS. If a business
8:12is making below 50 million dhams, they
8:15can choose for the IFRS forme.
8:20Any business who is making revenue below
8:24803 million
8:27in a year, they can either prepare the
8:31books in the cash basis
8:36or acral basis. Now what is cash basis?
8:39What is acrual basis? I will give an
8:42example.
8:44Let's say you your business got a
8:47revenue of a
8:51120,000 dham
8:54for an annual contract.
8:59You got a contract and this contract is
9:01for one year and you got the money
9:04120,000 dhams as per cash basis. When if
9:08you are making your accounts as per cash
9:10basis, this 120,000 dhams you will
9:13consider as revenue on the day you
9:16received
9:23on the day you received you will
9:24consider it as a revenue. Whereas if you
9:27are following acral basis of accounting,
9:30you will see that okay this revenue I
9:32got today is not for the uh like you
9:35know not for the one day or 1 month. The
9:38revenue I received and I need to do my
9:42services over a period of 12 months. So
9:44what you are going to do you are going
9:46to divide
9:48120,000 durhams with 12 months and you
9:51are going to book each month
9:55a 10,000 dham. So in acral you are going
10:00to book your income and expenses as and
10:02when it is due especially when it comes
10:05to the long-term contracts. Whereas in
10:07cash basis you are going to book the
10:09revenue the day you receive the money.
10:15For businesses who are making below 3
10:17million dhams they can either uh follow
10:21cash basis of accounting or they can
10:23follow acral basis of accounting. This
10:25is also explained in ministerial
10:27decision number 114 of 2023.
10:34Now let's discuss we know like how we
10:38are arriving accounting profit it which
10:39is basically revenue minus expense and
10:42how we need to uh derive our accounting
10:45profit using the accounting standard.
10:47Accounting standard is IFRS. Above 50
10:50million durhams must follow full IFRS.
10:53Below 50 million DS they have a choice I
10:57mean they have a choice either they can
10:58do full IFRS or a simpler version of
11:01IFRS which is ifrs forme below 3 million
11:04dhams they can either go for cash basis
11:07of accounting
11:08or they can go for uh acral basis of
11:13accounting.
11:19Now let's discuss on taxable income.
11:25How a business should arrive taxable
11:28income from accounting income or
11:30accounting profit. So when I'm telling
11:32income in the tax law income is equal to
11:36profit.
11:38So please don't get confused when I'm
11:40telling income I'm referring revenue.
11:42revenue I will revenue
11:45either it will be defined or explained
11:48as revenue or as turnover
11:52income will be always income or profit
11:55so when I'm telling taxable income I'm
11:57referring that taxable profit when I'm
12:00telling taxable revenue that means it is
12:02revenue or like you know it's not
12:04considered as profit
12:07now taxable income or taxable profit we
12:11need to determine from the uh accounting
12:14profit using eight adjustments.
12:20There are eight adjustments specified in
12:22the corporate tax law. And using this
12:24eight adjustments, we need to derive our
12:27taxable profit. What is the first
12:29adjustment?
12:31First adjustment is exemptingum.
12:38Exempting income is explained in article
12:4127 of corporate tax law. Corporate tax
12:43law to explain that certain incomes are
12:47exempted. That means if you have
12:49accounting profit and in that accounting
12:53profit, there are certain income which
12:55are exempted from corporate tax law. You
12:57can remove it. There are mainly four
13:00exempting income which we will discuss
13:02uh in detail. We will have a separate
13:04chapter for exempt income. One is
13:08local dividend
13:11means any UAE company is getting
13:13dividend from another UA company. Second
13:15one is participation
13:20exemption.
13:22Participation exemption is when a UAE
13:25company is getting dividend from foreign
13:27country or getting capital gain when
13:30they sell the shares. And uh
13:34the third category is
13:45foreign business who are into
13:49international
13:55aircraft
13:57or shipping.
13:59This exempt income is mainly based on
14:02the uh like you know reciprocity
14:05treatment between UAE and other
14:07countries. I'll give an example to you.
14:10UAE is telling that okay if an Indian
14:13airline any any Indian airline let's
14:16take an example Indigo is coming to UAE
14:19and uh picking passengers from UAE and
14:21taking it back and doing like you know
14:24uh shuttle services.
14:26UA will not tax Indigo if India is
14:31telling that India will not tax
14:32Emirates. So it's a reciprocal contract.
14:35If that reciprocal contract is hornered
14:38by the countries then UAE told that such
14:40companies such airline companies no need
14:43to pay taxes in UAE. These are exempt
14:46income which is the first adjustment we
14:49need to do to derive from our uh
14:51accounting profit to tax profit. We will
14:54discuss it in detail.
14:57Second adjustment is unrealized
15:04gain or loss
15:09if elected.
15:13Unrealized gain or loss. Again, what it
15:15is unrealized gain or loss? Let's say
15:17company bought a property, a real estate
15:19property. They bought it in 2024
15:23and they are not selling this property.
15:25The property value is increasing year on
15:27year. Every year the property value is
15:29increasing.
15:31When they are the property value is
15:33increasing they may be including the
15:36increased value in their accounts. Let's
15:40say they are using a revaluation
15:42model. What is revaluation model? Every
15:46year they will see what is the assets
15:48what are the assets the company have and
15:51they will see what is the market value
15:53as on today and they will book the
15:56market value. So what is going to happen
15:57if let's say they bought a property for
16:001 million in 2024 now they are closing
16:03the books of 2025 they are using a
16:06revaluation model in 2025 31st December
16:09the property value is 1.25 25 million
16:13on 2025. Have they sold this property?
16:16No. The property is still with them. Now
16:18this 250,000 dhams is a unrealized gain.
16:24Have they sold this thing? No, they have
16:26not sold. It is still uh in their books
16:28only and uh but the value of the
16:31property is increased. Now this 250,000
16:34dhams do they require to pay taxes?
16:38If they have elected that we will not
16:41pay taxes on our unrealized gain then
16:44they do not require to pay taxes on
16:46unrealized gain. So this is the second
16:48adjustment. Third adjustment
16:53income from
16:56group companies.
17:00This is mainly related to tax group.
17:05Again all these things what we are
17:07discussing you can in short like you
17:09know I don't need to tell you this every
17:10time I'll uh give a bottom line
17:13disclaimer what we are going to do here
17:16it is around 8 to 10 chapters in the
17:20first 8 to 10 chapters we are setting a
17:22foundation
17:24and 11 chapter on we will be going back
17:27to all concepts what we have so far
17:30discussed in detail each and everything
17:32tax group uh which we are going to
17:35discuss. Now we will have at least two
17:37chapters on tax group exempt income. We
17:40will have one or two chapters
17:41exclusively on exempt income. We will
17:44have a separate chapter for unrealized
17:46gain. How to calculate all the things.
17:48So everything will be covered again in
17:50detail. Right now what we are doing is
17:52we are just setting a plot so that you
17:55you you are understanding the basic
17:58concepts.
18:00So what is tax group? Tax group means
18:03company A, company B
18:06they are applying to federal tax
18:09authority that we want to create both
18:12these companies as a group
18:15and we want only one tax registration
18:17number one TRM.
18:20Now if they have one tax registration
18:22number they are going to do one filing
18:25one tax filing
18:27correct. So any transaction happening
18:30between these companies let's say
18:31company A is selling the goods to
18:34company B. So for company A it's a
18:37revenue company B it's a purchase that
18:40what is going to happen it is going to
18:42be knocked off the purchase and sales.
18:44So if there is a tax group the income
18:47from group companies need to be excluded
18:50while calculating the taxable income. If
18:53you are seeing company A's books what
18:55what will be there? there will be a sale
18:57income because they sold the goods to
18:59company B. If you see company B's books,
19:02you will see a purchase.
19:05Now when it comes to corporate tax, this
19:08income on expenses or the purchases will
19:10not be considered while calculating the
19:13taxable income. Why? Because they are
19:16filing single tax return. It will be
19:18knocked off. This is the third
19:21adjustment. And fourth adjustment is
19:24non-deductible expenditure
19:30which is explained in
19:33article
19:3533. Certain expenses which may be
19:38considered as expenses for your business
19:41purpose but for tax purpose it is not
19:43considered as an expense. I will give an
19:45example to you. Fines. If a company's
19:49paying some fines in company's books it
19:52will show as an expense right but for
19:54tax purpose the authority told no you
19:57cannot consider fine as an expense you
20:00need to disregard this expenses
20:04and further it is explained that if the
20:06business has any entertainment expense
20:11entertainment expense means the business
20:13is keeping some some kind of events for
20:16the customers or supplier buyers and
20:19they are spending money for that.
20:22In IFRS's point of view, yes, it is your
20:25business expense. You can consider it in
20:26your books. But tax law is telling no,
20:29entertainment expense is not fully
20:31allowed. Entertainment expense is
20:33allowed only 50%age.
20:37One last example I will give to you
20:39which is donations
20:43and gifts. If a business is giving any
20:46donation or gifts, it is disallowed. In
20:49donation, the authority told if you are
20:52giving any donation to approved
20:58charitable institution or any approved
21:00institution
21:03then it is allowed. So the there is a
21:06separate cabinet decision. In that
21:08cabinet decision there is a list of
21:10organization which are approved and if
21:13any business is giving any u any
21:16charitable don charity or donation to
21:19those organization it is allowed
21:21otherwise if a business is telling like
21:23okay I gifted this these things to my
21:26employees I have done a charity uh to
21:29Mr. A or like you know to someone they
21:31have given some charity the authority
21:34told no it is not considered as an
21:36expense for tax purpose you need to
21:38disregard this.
21:41And fifth one is
21:45transfer
21:49with related party
21:55and connected person.
21:59What? Who is related party? Who is
22:01connected person? Related party means
22:03think of a situation.
22:08You have two companies. Company A,
22:11company B.
22:14Now both companies are owned by you.
22:16That means you can control the price of
22:20transaction between these two companies.
22:22Let's say company A is providing a
22:24service to company B. Both companies are
22:27owned by you. you can decide that okay
22:29company A will not charge anything for
22:31this uh particular service or company A
22:34is going to charge 100,000 dham for this
22:37particular service where the market
22:39value is only 1,000 dhams so you as a
22:43person has a control over the pricing
22:46when there is a transaction happening
22:48between two companies that means company
22:51A and company B are called related
22:54party.
22:57This is the first concept. Second
22:59concept is connected person. Connected
23:01person means any business has owner
23:07or officer. Officer can be manager,
23:10director, CEO, CFO, uh CEO. It can be
23:15anyone who is on the senior level or
23:18relative
23:20of owner/
23:25officer.
23:27These are the three categories of people
23:30who come under the definition of
23:31connected person. Now why it is
23:34important in UAE? If you remember we
23:37discussed in the
23:39uh previous chapter that the cabinet
23:41decision 49 of 2023 is published and
23:46cabinet edition 49 told natural person
23:49will be subject to corporate tax if the
23:52business income is more than 1 million
23:54dhams and while calculating the 1
23:57million dhams you you are going to
23:59exclude three things. First thing is
24:01wages.
24:03That means if an individual who is
24:04getting wages that wages is not subject
24:07to corporate tax.
24:10If in UAE if [clears throat] the salary
24:12or wages is not taxed every business
24:15will straightforward think that okay let
24:18me take the entire profit as tax and uh
24:21make my company on losses so that I
24:23don't need to pay taxes.
24:25Now think of a situation you it is not
24:28there just for example purpose I'm
24:30telling or I will give a real example to
24:33you take an example country Singapore
24:37Singapore has 17%age corporate tax
24:42Singapore has 23%age income tax
24:47now someone from Singapore and they told
24:50once the company paid corporate tax
24:52dividend
24:55no tax.
24:58Now someone from Singapore what they
25:01will do will they take dividend after
25:03paying 17%age corporate tax or will they
25:05pay 23%age income tax by way of taking
25:08salary? they obviously will go for
25:1017%age corporate tax they will pay they
25:12will not take any salary and
25:14[clears throat] after paying 17%age
25:15corporate tax they will take dividend
25:18but now in UA UA told if you take salary
25:21there is no corporate tax applicable on
25:22that
25:24here comes the concept of connected
25:26person if you are a connected person of
25:29the business your salary need to be as
25:32per the market value
25:37and you need to document it and this
25:40documentation uh entire thing is called
25:42transfer pricing
25:45deciding in which price or what should
25:47be the salary as per the market value
25:50the owner or senior management can take
25:53and documenting it. This document is
25:55called transfer pricing document. The
25:58same goes for related party also which I
26:01explained to you previously. If there is
26:03a common control in two companies and
26:05that two companies are considered as uh
26:08related party companies when they do
26:10transaction they also should deal in a
26:13market value.
26:15When you think inside UAE it may not
26:18make sense to you but I will give
26:19another example to you. Company A in UK,
26:24company B in UAE. UK let's say the
26:29corporate tax rate is 23%age.
26:32And in UAE the corporate tax rate is 9%.
26:35This both companies are owned by Mr. A.
26:39So what Mr. A is thinking that I will
26:44invoice from my company B to company A
26:47for some services and instead of
26:50charging 100 A, I am going to charge
26:5310,000 A.
26:56Why he wants to do it? when UK company
26:59paying UA company this 10,000 AD in UK
27:02it is considered as expense
27:06which will obviously reduce their
27:08corporate tax and the corporate tax rate
27:10is 23%age
27:12versus in UAE even if you bring the
27:15income to UAE UAE may be taxing or uh
27:19even if the company is paying the
27:21corporate tax company is paying only 9%
27:24so ultimately that company is saving
27:2714%age age tax
27:30to avoid this practice. Again the
27:32concept came no both the companies UK
27:35company and UA company they are related
27:37party and when they are dealing their
27:40business transaction because there is a
27:42common control the transaction need to
27:44be dealt in arms length value which is
27:47called market value. So what is arms
27:49length?
27:53Arms length the it's a technical term
27:56but what does that mean is that if your
27:59arms has a length like when you keep
28:01your arm straight
28:04you are finding a your third party
28:06customer the same length you need to
28:09keep for your own controlled companies
28:11also that means in the example what we
28:14have given that u company B generally
28:18providing this service to third party
28:20for 100 dhams that means that is the
28:23arms length value that is the amount
28:25they are charging for the third parties.
28:28When they charge for their own companies
28:31they should keep the same price the same
28:32arms length value [music] they need to
28:35keep.
28:37You can call it market value arms length
28:39value both are fine. Arms length is more
28:42technical and professional word.
28:45The same way we discussed on connected
28:47person. If the connected person is
28:49getting some benefits from the company,
28:52it need to be at market value or arms
28:54length value. So this is the
28:59fifth adjustment. And why why this
29:01adjustment is there? I'll just quickly
29:04explain to you in the same example.
29:07Company B was supposed to get 100 dham.
29:11100 dham is the ALP arms length price.
29:16How much they got? 10,000 dhams. So this
29:2010,000 dham they will show in their book
29:22as revenue.
29:25Correct? when they calculate the
29:27corporate tax they need to reduce their
29:31revenue 9,900
29:33AD they need to reduce the revenue
29:39because this 9,900
29:41is a is a non-armslength value
29:45reciprocally in UK they should consider
29:48only 100 dham as expense this is mainly
29:51comes this concept of transfer pricing
29:53is mainly coming in the international
29:55transactions again we will discuss it in
29:58detail
30:00how muchever I'm telling I'm not going
30:01to repeat it but uh maybe I'm getting a
30:05feeling that you may be thinking so
30:07complicated but all this concept we are
30:10going to discuss again
30:13now the sixth adjustment from the UA
30:16corporate tax law
30:18transfer of losses
30:23where
30:2575%age
30:27ownership is common.
30:33What is this? If a company let's say
30:37again company A, company B
30:41both are owned by Mr. A
30:46100%age. That means both the company Mr.
30:49A is owning more than 75%age.
30:53Company A in 2025 got loss. Company B
30:58got profit.
31:01Now the corporate tax law is telling
31:03that when you are calculating let's say
31:06you are checking the uh calculating the
31:08tax for company B that means company B
31:11is showing as per books profit.
31:15Tax law is telling that if one person
31:19has more than one company and in both
31:22company that particular person has more
31:25than 75%age
31:27shares then company A loss can be
31:31transferred to company B's profit and it
31:34can set off. So in your books you are
31:37showing it's showing a profit but in
31:39taxable income when you are calculating
31:41what you are going to you are going to
31:42transfer loss of company B to company A
31:48and then
31:50let's say you have a profit of 100
31:54and you are transferring loss of
31:59transferring loss of 50 that means your
32:01taxable income is 50. So any transfer of
32:05losses is there that also you need to
32:07take into consideration when you are
32:09calculating your taxable income.
32:13Seventh one tax incentives and reliefs.
32:18Tax incentives and reliefs.
32:22As on today there is no tax incentives
32:24or reliefs announced. In future when the
32:27authority announce any uh incentives or
32:30relief that you are going to take into
32:32consideration you are going to minus
32:34this incentive from your accounting
32:36profit to derive your tax profit. This
32:39is the seventh adjustment. And eighth is
32:42any other adjustment
32:47which
32:50ministry of finance
32:52decides
32:54through a ministerial decision.
32:58So these are the eight adjustment. Now
33:00you have accounting profit and from this
33:03accounting profit you are calculating
33:04your tax profit. While calculating your
33:07tax profit you need to make eight
33:10adjustment. Adjust adjustment number one
33:12you need to remove the exempt income. If
33:15you have any of your income which is
33:17there in your books which is exempted
33:19from UA corporate tax you need to remove
33:21that. Second thing if you have elected
33:24that my company will pay taxes only when
33:27the profit is realized and you have any
33:30unrealized uh gain or loss that means
33:33you need to adjust that one. That is the
33:35second one. Third one, income from group
33:38company.
33:40If there is a tax group created
33:43and any transaction happening between
33:45the group company need to be removed.
33:48Fourth thing, non-deductible
33:49expenditure. Certain expenditures will
33:52be shown in the books but as per the
33:54corporate tax law that may be not
33:57allowed or partially allowed. We
33:59discussed fines are not allowed.
34:00Entertainment expenses 50%age allowed.
34:03uh donations certain donations are
34:06allowed certain donations are not
34:08allowed like that there are a list of
34:09non-deductible expenditure
34:12then fifth thing any transaction
34:15happening between related party and
34:17connected person and you need to adjust
34:20it if there is a nonarmms length value
34:24in your books if your books are as per
34:26arms length then no need to adjust but
34:28if there is any nonarms length or
34:29non-market value uh is there in your
34:32books that need to be adjusted.
34:36Sixth thing, any loss you are
34:38transferring from a group company like
34:41if there is a 75%age ownership and you
34:44are transferring the loss from company A
34:47to company B then that adjustment need
34:50to be made. This transfer of losses is
34:52explained in article 39.
34:55And seventh thing when the authority
34:58announce any incentives or relief that
35:00also you need you can adjust in your uh
35:03books to arrive the taxable income and
35:06any other adjustment which ministry of
35:08finance
35:09will be uh announcing
35:12in future. Now let's make a example
35:15calculation so that all these things we
35:17will be covering.
35:19We got a profit and loss account and the
35:22profit and loss account is telling that
35:24okay the company has 1 million dhams
35:26revenue.
35:28Company has expenses
35:33700,000 dhams. That means the company
35:35has a profit of 300,000 dhams as a
35:38profit.
35:40This profit is accounting profit. And
35:43how they need to arrive this accounting
35:45profit using the accounting standard.
35:46What is the accounting standard? IFRS.
35:49Now once we get the accounting profit
35:51from here we are starting the tax
35:53calculation
35:55let's say in this 700,000 expenses there
35:59is a fine the company has paid and how
36:02much fine they have paid they have paid
36:0450,000 fine is fine is allowed as per UA
36:08corporate tax law no that means we need
36:09to add back 50,000 dham fine
36:13which is already included in the
36:16expenses
36:18then comes
36:21entertainment expense
36:28in this 700,000 dhams uh let's assume
36:31there is 100,000 dham the company spend
36:34for entertainment expenses how much can
36:36be claimed so the total is
36:39100,000 how much is disallowed 50%age
36:43only 50%age is allowed that means they
36:45are going to add back again 50,000 dams
36:49to their books. Now this two these are
36:51the two adjustment. Let's assume to make
36:53it simple. These are the two
36:55adjustments. That means their
36:58uh revenue uh accounting profit is
37:01300,000 dham. Out of their total 700,000
37:04dham, two expenses were either one was
37:07not allowed, one was partially allowed.
37:10Now when we add back
37:13their income become 400,000
37:17and this is called taxable
37:21income.
37:26CT is applicable
37:30on taxable income and how we need to
37:33work out first we need to see
37:37up to 375,000 dham zero
37:42above 375,000 dham 9 percentage
37:48how much it will be from 400,000 first
37:52375,000 is not taxed then Trust 25,000
37:56dhams
37:58is taxed at 9%. How much will be the
38:00taxes? 2250.
38:03This is how in short the corporate tax
38:06calculation need to be done. First we
38:09need to prepare the books, make the
38:11adjustment, arrive at the taxable
38:13income, calculate the tax and pay the
38:15taxes. This is how it need to be done.
38:19So with this we will stop uh we will end
38:21uh today's uh session. I'm going to uh
38:25post three questions which is relating
38:27to today's discussion and uh please make
38:30sure that you are answering for those
38:32question. We'll see you in the next
38:34session. [music] Till then bye-bye.

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