Why Corporate Tax Planning is Important for Business Owners?

The UAE is no longer a tax-free region as the Corporate Tax has become effective from 1st June 2023. Businesses subject to corporate tax in the UAE will taxed on their profits earned in the country. Corporate tax consultants in Dubai advise businesses to carefully approach the new tax regime as any misstep may impact their operations and reputation adversely.

Businesses need to carry out comprehensive corporate tax planning to ensure compliance, avoid penalties and develop effective tax-saving strategies. An assessment needs to be done as part of the corporate tax planning process so that you can determine whether a business restructuring is required.

Availing of corporate tax planning services in the UAE can help you approach the new direct tax regime the right way. In this blog, we will walk you through the importance of corporate tax planning for UAE business owners. Let us dive in:

Why UAE Corporate Tax Planning Services are Critical ?

The UAE is stepping into a new regime of taxation that can put immense stress on business owners. The business community is in a mad rush seeking expert advice to understand the impact of corporate tax on their business.

However, a structured approach, not a frenzied hurry, is required to navigate the complexities of corporate tax. This is where corporate tax planning becomes critical for business owners in the UAE.

Mainly, you can achieve the following goals by availing corporate tax planning services in the UAE:

Compliance with the UAE Corporate Tax Law

The ‘Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses forms the basis for corporate tax compliance in the UAE. Companies need to understand each provision of the law and ensure compliance with it. Apart from that, you need to focus on the various Ministerial Decisions released by the government in connection with the UAE Corporate Tax law.

Avoid the Risk of Penalties

Failing to comply with the corporate tax law can lead to hefty administrative penalties. The Cabinet Decision No. (75) of 2023 lists the violations and penalties related to corporate tax. Comprehensive corporate tax planning is the ultimate solution to avoid penalties arising from any provisions in the corporate tax law.

Avail of Small Business Relief

Planning for corporate tax in the UAE will help you determine whether your business is eligible for small business relief. The small business relief provision in the Corporate Tax Law minimizes the compliance obligations faced by small businesses, mainly by reducing the burden of having to calculate and pay Corporate Tax.

Relief for Qualifying Free Zones

A free zone person can leverage the 0% corporate tax rate if it is a Qualifying Free Zone Person. Free Zone companies need to assess whether they are eligible for the Qualifying Free Zone Person status. You can determine your eligibility for 0% tax benefit by consulting with corporate tax planning service providers in the UAE.

Benefit from Restructuring Relief

Corporate tax can put a dent in your business profits if not acted wisely. However, you can save your business from hefty corporate tax liabilities by opting for restructuring relief. To avail of restructuring relief, a company can transfer its assets and liabilities between entities without being subject to any tax liability.

Benefits of Tax Group Creation

The burden of corporate tax compliance in the UAE can be heavy for business owners. However, two or more taxable persons can form a corporate tax group to ease this compliance burden.

Such a group will be treated by the FTA as a single taxable person, requiring only a single registration and single tax filing. The possibility of minimizing the compliance burden through tax group formation can be assessed during the process of corporate tax planning in the UAE.

Navigating Transfer Pricing Rules

Multinational enterprises (MNEs) need to abide by transfer pricing requirements when they carry out cross-border transactions with their own divisions (associated enterprises) that are located in other countries.

When a product, service or Intellectual Property (IP) is exchanged between subsidiaries of an MNE that are located in different tax jurisdictions, the prices should be at arm’s length. It means the transactions between the associated enterprises must be priced as if they were between unrelated entities.

Things to know for Corporate Tax Planning

Firstly, you need to understand the basis of your company’s UAE corporate tax planning strategy. The following aspects should form the foundation of your tax planning.

The UAE corporate tax rate

A 0% corporate tax applies on taxable income not exceeding AED 375,000. A 9% corporate tax will be charged on taxable income exceeding AED 375,000.

Taxable Persons

You need to assess whether you are subject to corporate tax in the UAE. You will be subject to corporate tax if you are a company incorporated or effectively managed in the UAE; an individual conducting a business or business activity in the UAE; a foreign entity with a Permanent Establishment in the UAE; or a company incorporated in a UAE free zone.

Exempt Persons

Certain persons are exempt from corporate tax such as Government Entities, Government Controlled Entities that are specified in a Cabinet Decision; Extractive Businesses; Non-Extractive Natural Resource Businesses; Qualifying Public Benefit Entities; Public or private pension and social security funds; Qualifying Investment Funds; Wholly-owned and controlled UAE subsidiaries of a Government Entity, a Government Controlled Entity, a Qualifying Investment Fund, or a public or private pension or social security fund.

Corporate Tax Registration

All taxable persons are required to register for corporate tax in the UAE including free zone persons. The Federal Tax Authority (FTA) may also request certain exempt persons to register if necessary.

Calculation of Taxable Income

Businesses can determine Taxable Income by applying certain adjustments to their annual Accounting Income, which should be taken from the Financial Statements prepared as per accepted accounting standards.

We can help you with effective corporate tax planning strategies

Carrying out corporate tax planning in the UAE is significant for ensuring regulatory compliance as well as leveraging any available tax incentive or relief. However, corporate tax planning is an intricate process that can be daunting for UAE businesses. In such a situation, businesses can seek the assistance of leading corporate tax consultants in the UAE to make sure their planning is robust and seamless.

Tax Gian is a leading provider of corporate tax services in Dubai with over two decades of experience in the field of tax advisory. We can carry out a corporate tax assessment on your UAE business and come out with a robust tax planning strategy. Contact us today to avail affordable corporate tax advisory services in Dubai, UAE.

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