When it comes to operating a business in the United Arab Emirates, you have probably heard about the introduction of corporate tax in the UAE. Thus, although the UAE still has low rates of corporate taxation compared to other countries, there are ways to minimize the taxation burden and increase profits. This article will shed light on some of the most effective strategies that could be employed when seeking to reduce corporate tax liability in UAE.
The UAE has officially stated that it will introduce a federal corporate tax starting from the first of June, 2023. The standard rate of corporate tax will be 9% for companies earning more than AED 375,000 of profits. However, there are certain exceptions and allowances given to businesses which we will discuss below in this article.
Taxable Income (AED) | Corporate Tax Rate |
---|---|
0 - 375,000 | 0% |
Above 375,000 | 9% |
Large multinationals that meet specific criteria | To be determined based on 'Pillar two' of the OECD Base Erosion and Profit Shifting Project |
The UAE has put in place several tax reliefs and incentives for the companies involved in various sectors. Thus, by satisfying the criteria for such exemption/incentives and applying for them, you can considerably minimize your corporation tax.
It is also important to consider the structure of the business because it plays a big role in determining the corporate tax due. For instance, establishing a subsidiary in a free zone can offer tax advantages and other privileges.
It is important not to have incorrect records with regards to the financial records you have if you want to undergo corporate tax reduction. The concept of documenting each expenditure for your business enables you to claim some added deductions which in turn minimizes the taxable income thus reducing you tax implication.
You should seek the services of a registered tax agent in the UAE in order to ensure that your business is on the right side of the law as far as tax compliance is concerned. A tax agent can also assist you to go through the possibilities that may allow for reduced amount of taxes that will be paid and whether or not you are qualified for some tax incentives and tax deductions.
Late submission of your corporate tax return or non-payment of your taxes attracts other costs in form of penalties and increased fees. Thus, if you ensure that you are preparing your tax returns and filing them as and when due, you with be able to avoid these other costs and be compliant with the tax laws of UAE.
A: Some of the ways through which companies can minimise their tax cost in the UAE include availing the tax exemptions and reliefs, integration of the business structure, keeping sound records, engaging a registered tax consultant, and filing and paying corporate tax in the correct time.
A: Yes, it is legal to reduce corporate tax in the UAE through the following; tax waivers and incentives, tax reliefs for allowable expenses, and operation structures.
A: Some of the allowable tax deductions that any business might be qualified for in the UAE are, rent, salary expenses, depreciation, and interest expenses.
A: Yes, the UAE has set out a legal framework for taxation and has been providing tax credits to the companies in certain fields or in certain geographical zones known as free zones. Some of these incentives may range from low taxation policy, tax holidays, and privileges such as import and export duty-free and easy custom formalities.
Hence, to reduce corporate tax liability in the UAE, the aspect needs careful planning and close attention to detail. Some of the strategies that will help you reduce your taxes include taking advantage of tax exemptions and incentives, structuring your business properly, keeping good fiscal books and records, hiring a registered tax agent in dubai , and ensuring that you are always on-time in filing and paying your corporate taxes.