The United Arab Emirates (UAE) is one of the most business-friendly environments in the world. It offers companies a strategic gateway with tons of opportunities. However, you must also be aware of the corporate tax obligations with which all businesses in the UAE must comply.
The United Arab Emirates (UAE) is one of the most business-friendly environments in the world. It offers companies a strategic gateway with tons of opportunities. However, you must also be aware of the corporate tax obligations with which all businesses in the UAE must comply.
The rate of corporate tax in UAE is 9%, which is comparatively very low when compared to the global level and is applied to Free Zone, Mainland, and offshore companies. Being consistent with your tax filing and returns provides clarity. However, you must also leverage legal avenues for tax planning and efficiency.
UAE offers legal methods and ways to save tax and optimise costs. This article will provide you with an overview of how you can utilise such methods to your advantage.
The Corporate Tax Framework in the UAE
The UAE has established itself as a business hub worldwide. It offers competitive policies, low taxes, well-developed infrastructure, connectivity, and business-friendly laws.
The corporate tax was introduced to strengthen the UAE’s position as a global business hub and to invest in the country’s development further. The fixed rate of 9% means that businesses must focus and be more careful towards tax planning, reporting, and optimisation to reduce tax liability.
The UAE levies corporate tax only on profits and income earned. The threshold is AED 375,000. However, UAE-based companies must legally register for federal corporate tax, whether on the mainland, in the Free Zone, or offshore.
Companies with business operations in multiple countries are required to determine their tax residency status. Such businesses can leverage the concept of permanent establishment to ascertain tax liabilities.
Engaging a professional corporate tax advisor can remove the stress of tax liability by reviewing your corporate structure and activities to find a tailored tax solution for you.
Leveraging Tax Planning: A Strategic Approach
As the federal tax rate is fixed, tax planning has become crucial for companies looking to save costs. If you work closely with an expert tax advisor like Avyanco, you can easily identify legal and safe methods to reduce tax liability. This provides you with a competitive edge in business.
Here are some of the key aspects that you can analyse to find tax-saving opportunities:
- Evaluating qualifying activities and tax incentives by the government to reduce tax rates significantly or get exemptions
- Aligning the substance requirements to business operations to minimise the risk of penalties or fines
- Review corporate structures and analyse the aspects related to tax implications of holding companies.
- Keep a proper record of deductible expenses to reduce the overall taxable income.
- Take advantage of available subsidies, tax rebates, and concessions (if you meet the eligibility criteria)
Corporate tax planning is something other than what you do once you begin your business setup in Dubai. It is an ongoing task, and the tax strategy has to evolve with evolving regulations. The vision should be to create a flexible tax-efficient structure to make necessary changes in the future.
Qualifying Activities: A Path to Tax Efficiency
While corporate tax applies to all UAE-based companies, businesses registered in designated Free Trade Zones and participating in qualifying activities are not liable for it. If your primary business operation is a qualifying activity, you can significantly reduce your overall tax exposure.
These activities may range from Research & Development (R&D), manufacturing operations, international trading, shipping activities, and more. For instance, a qualifying shipping company has to pay 0% federal income tax on qualifying income.
Tech start-ups only involved in R&D activities enjoy five years of tax credits. FTA offers avenues for small businesses with turnover equal to or little more than AED 375,000, so they can also optimise taxes.
The UAE has a constantly evolving tax landscape. Hence, you must occasionally evaluate your tax strategy and corporate structure to update them. All businesses in the UAE must maintain proper documentation and strictly follow guidelines to meet the criteria for concessions.
If you hire tax specialists, they will examine your business activities in-depth to create a long-term plan that will reduce your tax liability.
Substance Matters: Maintaining a Strong Business Presence
So far, you understand that a tax-efficient structure is essential to reduce your tax liability. But you must also have a strong economic substance in the UAE. The business should operate in the country with local employees, office space, and tangible assets.
You must have proper internal processes and control in the company. With a strong local presence, businesses can avoid scrutiny and not be treated only as an entity created for tax advantages.
Keep a proper record of payroll slips in the FTA-approved format to demonstrate them as personnel costs in the total expenses. A defined organisational chart and MoA explaining control and procedures helps you portray strong local control.
Our experienced tax consultants can guide you in building a strong substance to align with your tax and business goals.
Deductible Expenses: Maximising Tax Efficiency
Smartly managing the deductible expenses can lead to highly reduced payable tax. All kinds of business expenses are usually tax deductible in the UAE. Some such expenses include:
- Employee costs
- Rental charges
- inventory
- Repairs and maintenance to utilities,
- Insurance
- Depreciation
However, you must ensure that all the expenses are carefully documented with itemised invoices. If we work with you, we take care of your deductible expenses. We identify deductible expenses for our clients and maintain accuracy during accounting.
Stay updated on CT changes in Dubai and constantly monitor deadlines and criteria for expense deduction claims.
For example, depreciation charges need accurate classification of assets by category and their expected lifespan. Several caps exist on certain deductions, like employee accommodation expenses, which cannot exceed preset thresholds. Record keeping and account maintenance play a pivotal role.
Avyanco: Your Tax Efficiency Partners
At Avyanco, we have a team of expert corporate tax advisers in Dubai. They have years of experience in financial, accounting, and taxes to keep you informed about changing regulations.
We are your advisors and guide you in building tax-efficient structures with high commercial objectives. We assist you with optimising tax implications – helping avoid penalties by finding and resolving risks consistently.
Our first step is to analyse your business and get a good understanding of what you do, including
- Activities
- Processes
- and plans.
Then, we review the tax-sensitive areas to realign the structure. We collaborate with you and help you build customised solutions that reduce your tax liability and help you avoid fines, too.
We also assist you with accounting, compliance, and structure to help you build an initial foundation. We also represent you during tax disputes and reconcile on your behalf.
Conclusion: A Proactive Approach to Corporate Tax
Do not think of corporate tax as something you are supposed to do later. Integrate tax strategies as soon as possible in your business structure.
There are many exemptions and rebates that you can leverage in the UAE. However, you have to remain active and focused. You must continually review the structure of your business setup in Dubai, eligibility, and deductible expense claims.
All the activities and transactions must have proper records. If you need assistance with complete corporate tax guidance, tax planning, or resolving disputes, connect with us at Avyanco today.
