Corporate Tax Planning In UAE – Tax Saving Strategies for Businesses

Businesses in the UAE aim to optimize tax planning by minimizing corporate tax liability. Effective strategies adhering to the Corporate Tax UAE corporate tax laws while implementing effective strategies are essential for achieving this objective. To reduce the corporate tax liability in the UAE, there are several ways to adopt strategies as mentioned below: –

I. Maximizing Deductions for Tax Efficiency

To reduce taxable income, businesses should explore the scope of available deductions. Consultation with tax experts helps identify applicable deductions, such as those related to travel and advertising expenses. In the UAE, you can subtract certain expenses from your total income before you pay taxes. So, the more your business spends, the more opportunities you have to claim deductions and save money. Tax advisors can assist taxable entities in benefiting from various deductions allowed under the UAE Corporate Tax Law. Common types of deductions include travel expenses for business trips, rent for your office, employees’ salaries/wages, and business utilities. Firms can claim a deduction for net interest expense (NIE), up to 30% of tax-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), with a specified threshold set at AED 12 million. Additionally, business-related expenses, such as rent, salaries, utilities, depreciation, and interest, are eligible for deduction, provided they are incurred solely for business purposes. The taxes paid on profits and income under foreign jurisdiction is called a foreign tax credit that can reduce the corporate tax liability. 

II.Guidance regarding Exemption

Tax advisors can assist taxable entities in leveraging specific incentives and exemptions provided by the UAE government for certain sectors. To reduce corporate tax liability, it’s crucial to research and identify applicable tax advantages based on the industry and location of the business. Some exemptions from corporate tax include revenue generated from the extraction of natural resources, which is subject to existing corporate tax at the Emirate level. A UAE company is accountable for corporate tax on dividends and capital gains from its eligible shareholdings. Additionally, intra-group transactions and reorganizations qualify for corporate taxation at the Emirate level, provided specific criteria are met. Furthermore, individual earnings, including salary, interest, dividends, capital gains, and real estate investment proceeds, are subject to corporate tax when received in a personal capacity.

III. Expert Accountant Services for Holistic Tax Analysis

Engaging the services of an expert accountant plays a pivotal role in saving businesses from excessive taxes. Think of accountants as superheroes who know all the secrets of saving you money on taxes! They take a close look at your business, like profits, cash flow, and expenses, and then use their magic to find the best ways to reduce your tax bill and avoid any trouble. They’re like financial detectives who always find hidden ways to save you money!

IV. Record Keeping: –

Keeping good records throughout the year is like having a secret map for your taxes. The better your records are, the easier it is to fill out those tax forms and make sure you’re following all the rules. It’s like having all the ingredients for a delicious recipe – the more organized you are, the smoother everything goes!

V. Choosing Your Business Structure: –

If you’re a sole proprietor, think of your business structure as a kind of armor that protects you from taxes. Sometimes, switching to a “Limited Liability Company” (LLC) can be like putting on a stronger shield. This means your profits and losses go straight to you, and you only pay taxes on your personal income, not the company’s. It’s like simplifying things and making your tax life easier. The business structure is very important. A corporate tax expert can help you how to get benefits such as tax group benefits, relief for small businesses, Qualifying tax groups and Relief Mechanisms for Asset Transfers

Guidance Regarding Benefits Of Tax Group: –

Tax advisors can help taxable entities take advantage of the tax group benefits. The process involves the resident parent corporation, also known as the parent entity, proposing the formation of a group taxation structure with resident subsidiaries. For the group formation to happen, the parent corporation needs to maintain a majority ownership of at least 95% in terms of share capital or voting rights in the subsidiary. Additionally, both entities must not be exempt individuals and should not fall under the category of Qualifying Free Zone Persons (QFZP). Financial alignment is crucial, and both entities must follow a consistent financial year cycle and generate financial statements in line with equivalent accounting standards.

Benefits Of Small Business Relief:

Tax advisors play a crucial role in helping taxable entities benefit from Small Business Relief. To qualify for this relief, entities must meet specific criteria. First, their revenue should not exceed 3.15 billion UAE Dirhams. Qualifying Free Zone Persons are not entitled to small business relief. The process involves an official election, and it’s important to note that Small Business Relief doesn’t trigger automatically. Taxable Persons, regardless of claiming relief, should register and submit corporate tax returns. While the specific methodology for executing this election is yet to be confirmed, it may become a part of the annual tax return filing procedure.

Benefits Of Qualified Group:

Tax advisors are instrumental in assisting taxable entities in availing the benefits of a Qualified Consortium. To be recognized as part of a qualified consortium, certain criteria must be met. First, entities within the consortium need to maintain an established presence within the jurisdiction. There should be ownership of at least 75% (directly or indirectly) in one taxable entity by another taxable entity. Additionally, it’s essential to maintain uniform financial year-end dates. Exclusion criteria include none of the taxable entities being exempt individuals or Qualifying Free Zone Entities. Lastly, all taxable entities must adhere to standardized accounting norms when preparing financial statements.

Relief for Asset Transfers:

Tax advisors play a crucial role in assisting taxable entities in utilizing the benefits of the Mechanism for Asset Transfers (Article 43). This involves making an active choice through an election process during asset transfers. The relief mechanism acts as a shield, protecting resulting profits or losses from affecting Taxable Income. Importantly, it applies not only to straightforward transfers but also to scenarios involving the exchange of a business for shares and other considerations. The versatility of this relief mechanism makes it applicable in various scenarios.

VI. Informed Decision-Making for Tax Advantages

Businesses must make well-informed choices when aiming for tax deductions. Applying strategies like spreading the cost of machinery and equipment purchases over several tax years can greatly contribute to effective tax planning.

VII. Corporate Tax Advisory Services for Expert Guidance

Additionally, seeking guidance from experienced corporate tax consultants Dubai , such as Farhat and Co Consultant’s Corporate Tax Consultancy Services, is essential for reporting, optimization, and tax planning, to meet the corporate tax complexities in the UAE.

VIII.  Tax Exemptions and Incentives

Tax advisors can assist taxable entities in leveraging specific incentives and exemptions provided by the UAE government for certain sectors. To reduce corporate tax liability, it’s crucial to research and identify applicable tax advantages based on the industry and location of the business. Some exemptions from corporate tax include revenue generated from the extraction of natural resources, which is subject to existing corporate tax at the Emirate level. A UAE company is accountable for corporate tax on dividends and capital gains from its eligible shareholdings. Additionally, intra-group transactions and reorganizations qualify for corporate taxation at the Emirate level, provided specific criteria are met. Furthermore, individual earnings, including salary, interest, dividends, capital gains, and real estate investment proceeds, are subject to corporate tax when received in a personal capacity.

IX. Strategic Business Structuring

Properly structuring a business influences corporate tax liability. Business structuring, shareholders and operations can be streamlined by the expert consultant in respect of tax liability. 

X. Maintaining Accurate and Effective Financial Records

Effective financial record-keeping is critical for the reduction of corporate tax liability which includes cash flow, income statements, and balance sheets to avail benefits of exemption, credits, and deductions while complying with tax regulations.

Businesses must prioritize compliance with corporate tax laws while strategically reducing their corporate tax liability in the UAE. Failure to comply may result in substantial corporate tax fines and penalties. By following these expert tips and embracing strategic tax planning, businesses can navigate the dynamic landscape of corporate taxation in the UAE, ensuring both compliance and financial efficiency