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Corporate Tax Planning: Essential Strategies for UAE Businesses

You have probably heard about the new corporate tax regime in the UAE. As of January 6, 2023, your current business may very possibly be subject to the new Corporate Tax rate of 9%. Therefore, you may be wondering—and with good reason—what you should be doing with your company tax strategy.

In this post, we’ll go into the specifics of corporate tax planning in UAE, covering everything from comprehending the country’s tax structure and recent changes to identifying crucial tactics that might save costs and improve operations for your company. We’ll also go over the value of remaining current on tax regulations and the advantages of consulting a specialist to keep your company on the correct road.

A New Taxation Era in UAE

The UAE Corporate Tax system, which will go into effect from June 1 2023, will have an effect on firms operating in the nation. Remember that the UAE has tax rates for businesses that range from 0-9% depending on their taxable income.

The UAE enacted the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses to encourage tax transparency and stop detrimental tax practises.The Federal Corporate Tax will be implemented in the UAE under this law, with effect for fiscal years beginning on or after the launch date.

Taxing the net income or profit of corporations and other enterprises is the goal of corporate tax. The implementation of this tax aids the UAE in achieving its strategic goals, speeding up development and change while upholding its commitment to upholding international standards.


Who Is Affected by Corporate Tax and the Rates That Apply?

Corporate Tax is levied on a variety of entities, including foreign legal entities having permanent establishments in the UAE, individuals undertaking business or other economic activity in the UAE, and UAE enterprises incorporated or effectively managed and controlled in the UAE.

Companies with UAE incorporation, such as LLCs, PSCs, and PJSCs, must pay corporate tax as residents. If they are successfully “managed and controlled” in the UAE, foreign corporations are regarded as resident persons for purposes of the UAE Corporate Tax.

While non-resident individuals are only subject to corporate tax on income from their Permanent Establishment in the UAE or income derived in the UAE, resident juridical persons are subject to corporate tax on their income from both the UAE and outside. For taxable income up to and including AED 375,000, the applicable Corporate Tax rate is 0%; for taxable income over AED 375,000, the applicable Corporate Tax rate is 9%.

Who is Exempt from UAE Corporate Tax Law?

The corporate tax is not applicable to all companies or organisations. They consist of both extractive and non-extractive natural resource businesses, government entities, government controlled entities identified in a cabinet decision, and extractive businesses.

Additionally, companies engaged in the extraction of the UAE’s natural resources and some non-extractive industries subject to Emirate-level taxation are exempt from the UAE Corporate Tax if they meet certain requirements.

The UAE Federal and Emirate Governments, businesses engaged in the extraction of UAE natural resources, Public Benefit Entities, Investment Funds, public or private pension or social security funds, and UAE juridical persons wholly owned and controlled by specific exempted entities are also exempt from the UAE Corporate Tax.

Understanding the corporate tax structure in the UAE can help you make wise plans and seize the opportunities presented by this favourable tax environment.

Using the UAE Corporate Tax Law to Calculate Taxable Income

Under UAE Corporate Tax Law, deductions

You must examine your accounting net profit (or loss) and make adjustments for particular items stated in the Corporate Tax Law in order to determine your taxable income for a Tax Period. The tax year is typically the Gregorian calendar year, but if your company uses a different 12-month period for financial reporting, it may be different.

Are you interested in capital gains? Like any other income, they are counted against your annual taxable income. The realisation principle can also be used, which states that income is only taxed when a gain or loss is truly realised.

corporate tax planning

Related Party and Connected Person Transactions

No matter where they are, do you have dealings with Related Parties and Connected Persons? Your UAE-based business is subject to transfer pricing regulations. Fortunately, those double tax agreements we previously discussed can assist you in avoiding double taxation on your revenue and lessen the tax burden, particularly for companies that conduct cross-border commerce.

UAE Corporate Tax Law's Tax Loss Provisions

A tax group is treated as a single taxable business in the UAE, and the parent firm is responsible for managing and paying everyone’s taxes. The parent company must own at least 95% of the voting and share capital of its subsidiaries in order for there to be a tax group. This has advantages like better tax planning and lower expenses for compliance.

Tax losses may also be transferred between UAE group firms that share at least 75% of the ownership, provided certain requirements are met.

Transfer of Losses Under the Corporate Tax in the UAE

When group members transfer assets or obligations among themselves, the corporate tax framework permits exclusions from or postponements of corporate tax. You may benefit from intra-group transfer relief if your UAE-based entities have at least 75% common ownership, subject to some restrictions.

The good news keeps coming after that, too. For specialised business reorganisation events, like mergers and spin-offs, tax deferrals are allowed. This makes it simpler to establish and expand your business because you can change the way your company is structured or transfer assets without worrying about the immediate effects on your taxes.

You may make sure your company runs within the law and reduce your overall tax liability by comprehending and managing taxable income under the UAE Corporate Tax Law. You’ll be on the right track if you just stay aware about exemptions, deductions, transactions with connected parties, tax loss provisions, and transfer of losses.

UAE Corporate Tax Law Reliefs

Provisions for Tax Groups under UAE Corporate Tax Law

Did you know that businesses can create a tax group under the UAE Corporate Tax Law in order to better organise and streamline their tax compliance obligations? Consult with corporate tax specialists in Dubai if you’re unsure if your company qualifies for aligning tax years and creating a tax group.

Benefits and Conditions of Establishing a Tax Group in accordance with UAE Corporate Tax Law

Your company can more efficiently handle its tax compliance and reporting duties by forming a tax group. It’s crucial to comprehend the prerequisites and advantages of joining a tax group, nonetheless.

Consider the UAE’s participation in international accords, such as those aimed at preventing double taxation, when arranging your taxes. If the Corporate Tax Law and an international agreement clash, this could restrict how the UAE Corporate Tax is applied. UAE Corporate Tax and other federal taxes are administered, collected, and enforced by the Federal Tax Authority. For the time being, the Ministry of Finance continues to be the “competent authority” in relation to international tax information sharing and bilateral and multilateral tax agreements.

Calculation of the Payable Corporate Tax

According to the UAE Corporate Tax Law, your company must determine the amount of corporate tax that is due based on its taxable income for the applicable tax period. If your small business generates less than a specific amount in revenue, you are eligible for “small business relief” and will not be considered to have earned any taxable income during the applicable Tax Period.

You can also be subject to duties for streamlined compliance.

Paying and receiving a corporate tax refund

According to UAE Corporate Tax Law, your firm is expected to pay its corporate tax obligations. However, you can navigate your tax obligations with the help of a few reliefs that are provided by the tax code.

For instance, the UAE Corporate Tax will only apply to people who, in accordance with a Cabinet Decision, participate in a business or business activity. In addition, UAE holding companies must pay UAE Corporate Tax, but, subject to some restrictions, dividends and capital gains from local and overseas shareholdings are normally excluded from Corporate Tax.

Relief from Corporate Tax for Groups of Companies

Under UAE Corporate Tax Law, investment funds and licenced UAE investment managers can also gain from corporate tax savings. Subject to fulfilling specific requirements, investment funds may submit an application to the Federal Tax Authority to be exempt from UAE Corporate Tax.

When certain requirements are completed, regulated UAE investment managers may offer discretionary investing and asset management services to international funds and clients without establishing a long-term presence for the foreign investors or the foreign investment fund in the UAE.

Your company can improve its tax planning tactics and maintain compliance with tax requirements by being aware of the numerous reliefs provided by UAE Corporate Tax Law.

Observing UAE Corporate Tax Law

Taxes may be a pain in the neck, am I right? However, a thorough understanding of UAE corporate tax law can assist your Dubai-based business stay compliant and reduce tax obligations. The key elements of the law—such as registration and deregistration, tax returns, fines, anti-abuse guidelines, and transitional regulations—will be covered in this section.

UAE Corporate Tax Law: Tax Registration and Deregistration

Effective tax planning in the UAE requires compliance with tax legislation. Examine your financial records and evaluate your tax position to make sure you’re headed in the right direction. To ensure that your business complies with UAE Corporate Tax Law, it is a good idea to speak with tax experts, such as those offering VAT & Tax Consultancy services.

UAE Corporate Tax Law Tax Returns and Clarifications

It’s crucial to submit appropriate tax returns and clarifications in order to follow UAE Corporate Tax Law. You may help your business pay less in taxes and keep more of your hard-earned money by maintaining thorough records and implementing depreciation.

Did you know that there are more ways to assist, like giving to recognised sports organisations, utilising VAT refunds, and picking the best organisational structure? To ensure timely and accurate tax returns, it’s essential to be educated about changes in tax legislation.

UAE Corporate Tax Law Violations and Penalties

Nobody likes to be subject to fines and penalties, right? Make an investment in appropriate tax planning tactics to prevent these effects. Your company can reduce its tax liability and increase after-tax profits by taking full use of deductions, making retirement plans, and thinking about tax-free zones.

It’s a good idea to hire a tax expert. By preventing double taxation, obtaining a UAE tax residence certificate can also be advantageous for your company.

UAE Corporate Tax Law's Anti-Abuse Regulations

To prohibit unfair tax practises, the UAE Corporate Tax Law places several limitations on tax planning techniques. You can ensure compliance and keep out of trouble by being knowledgeable about these anti-abuse regulations.

Your business can manage these limitations and create tax plans that adhere to UAE Corporate Tax Law by working with a tax expert.

Temporary Provisions of the UAE Corporate Tax Law

Transitional rules may be developed as tax legislation changes to assist firms in adjusting to new rules and regulations. In order to comply with UAE Corporate Tax Law and prevent penalties, it is crucial for firms in Dubai to comprehend these regulations.

Watch for updates and modifications to the law. Consulting with tax experts may enable a smooth transition to new tax legislation as well as proactive management of your tax obligations, risk reduction, and financial success.

Consult with Dubai's Top Corporate Tax Advisors

Keeping Correct Records to Facilitate Effective Tax Planning

Accurately recording your income and expenses is an excellent place to start when arranging your taxes. By doing so, you can utilise all the tax breaks and credits that are available to you. Additionally, it enables you to keep tabs on your cash flow and financial growth as well as make wise business decisions.

Making Use of Tax-Advantaged Accounts and Methods

Did you know that tax-advantaged accounts, such as contributions to a retirement account or a qualifying pension plan, can assist lower your tax bill in the UAE? This is so that you can lower your taxable income and pay less in taxes by claiming these donations as a tax deduction, subject to a specific maximum. So instead of paying more in taxes than necessary, why not invest in tax-advantaged accounts and methods to increase your financial growth?

Purchasing Tax-Free Zones and Corporate Structures

The UAE is well-known for its tax-free zones, such the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC). These zones typically include tax and VAT exemptions for businesses. You can save a sizable sum of money on tax payments by making investments in these tax-free zones.

To fully take advantage of these advantages, however, it’s crucial to select the appropriate business structure, such as opening a branch or representative office of a foreign company.

Additionally, the UAE has tax agreements with a number of nations, which lower or do away with taxes on particular forms of income like dividends, interest, and royalties. Your tax management plan may be drastically improved by comprehending and utilising these treaties.

Observing and updating changes to tax laws

Always adhere to UAE tax legislation in order to efficiently prepare your corporation taxes. Non-compliance may result in fines, penalties, or even legal issues. Additionally, it’s critical to stay current with these changes and modify your business procedures because tax rules and regulations change frequently. Consult experienced tax advisors if you need assistance understanding how the UAE tax system stacks up against others across the world.

Refunds of VAT and Donations to Reduce Tax Burden

Want to pay less tax in the UAE while also giving back to the neighbourhood? The solution is charitable giving and athletic endeavours. Up to a specific amount, donations to recognised sports clubs are tax-deductible.

To lower your tax liability, you can also deduct things like charity contributions and business costs.

Additionally, if you don’t live in the UAE, you can be qualified for a VAT refund on purchases purchased there. As a result, you can recoup some of the VAT you paid and pay less in taxes altogether. Working with a qualified tax advisor can help you maximise savings since navigating the VAT refund process can be difficult.

Utilize Dubai's Tax System to Your Advantage for Business Success

Congratulations! This thorough overview of corporate tax preparation for enterprises in Dubai is now complete. Take advantage of Dubai’s business-friendly tax environment by using the knowledge you’ve learnt to make informed decisions.

Just keep in mind that knowing the UAE Corporate Tax system, abiding by the law, and using smart tax planning techniques are all essential to success. You’ll assure a smoother expansion of your company and greater financial success by doing this.

However, understanding the complex tax environment can be difficult. In order to maximise your tax savings while maintaining compliance, it’s critical to work with reputable corporate tax advisers. They can help you through the process and ensure that you stay in compliance. Why then wait? Utilise the strength of Dubai’s tax structure to take your company to new heights!