Corporate tax in the UAE is generally low compared to other countries. The UAE is one of the few countries in the world with no federal corporate income tax. However, this year, i.e., from 2023, UAE has brought a minimum amount of corporate tax for businesses that earn revenue in the country. So, it is obvious that companies may naturally look to reduce their corporate tax liability in UAE with proper corporate tax compliance.
Corporate Tax in UAE
In UAE, the Corporate tax will be implemented on 1 June 2023, with a standard rate of 9% for businesses earning more than AED 375,000. The corporate tax legislation of the UAE incorporates world-class taxation practices aimed at developing the country's economy, assisting firms in meeting international standards, and avoiding illicit tax practices.
The implementation of Corporate Tax is designed to assist the UAE in achieving its strategic goals and accelerating its development and transformation.
Corporate Tax Rates in UAE
Businesses and taxable persons in UAE are subjected to a certain percentage of corporate tax, so-called corporate tax rates in UAE. The CT Rates that UAE businesses are liable to are,
Additionally, all multinational corporations subject to OECD Base Erosion and Profit-Sharing laws that fall under Pillar 2 of the BEPS 2.0 framework, i.e., with combined worldwide revenues greater than AED 3.15 billion, are subject to a 15% corporate tax rate. Despite the low tax rates, businesses can still take steps to reduce their corporate tax liability in UAE.
How to Reduce Corporate Tax in UAE?
Businesses in the UAE can reduce their corporate tax by structuring their operations, utilizing tax incentives and exemptions, and maximizing deductions. In doing so, you must also comply with the corporate tax law. Failing to comply with the regulations may lead to hefty Corporate tax fines and penalties.
According to the Corporate Tax law, the UAE government offers various tax exemptions and incentives to businesses operating in certain industries. Businesses can take advantage of these exemptions and incentives by ensuring that they meet the eligibility criteria and applying for them with the relevant authorities.
Here is how you can minimize the amount of corporate tax your business is liable to.
1. Take Advantage of Tax Exemptions and Incentives
The UAE government offers tax exemptions and incentives to businesses operating in certain industries. For example, Government Entities, Extractive Businesses, Non-extractive businesses, Public Benefit entities, etc., are the entities that can benefit from tax exemptions and incentives. Businesses operating in the Dubai International Financial Centre (DIFC) can also benefit from tax exemptions and incentives.
Recently, the Ministry of Finance also announces a clarification about the decision on Corporate tax exemptions for Qualifying Public Benefit Entity.
To take advantage of these exemptions and incentives, businesses must ensure that they meet the eligibility criteria. They must also apply for these exemptions and incentives with the relevant authorities.
2. Properly Structure the Business
Properly structuring the business can provide several benefits beyond reducing tax liability. By setting up a subsidiary company in a free zone, businesses can benefit from the Corporate tax incentives provided by the free zone, as well as the ease of doing business in a designated area. Free zones in the UAE offer a range of incentives beyond tax exemptions, such as streamlined customs procedures, simplified regulations, and access to world-class infrastructure.
Alternatively, businesses can consider setting up a branch in a free zone. Unlike a subsidiary company, a branch is not a separate legal entity and is considered an extension of the parent company.
As a result, the parent company is responsible for the tax liability of the branch. However, branches can still benefit from the tax incentives provided by the free zone and can operate under the parent company's brand and reputation.
Also, as per the corporate tax law, When making transactions with different Free Zones Entities, or with companies outside the UAE, a Qualifying Free Zone Person is liable to 0% corporate tax on the income.
When deciding on the best structure for their business, businesses should consider a range of factors, such as the nature of their operations, transactions, growth plans, and long-term goals. They should also seek the advice of legal and tax professionals to ensure that they comply with UAE regulations and laws.
3. Maintaining Financial Records
Maintaining financial records helps in claiming deductions on business expenses which can lower the taxable income of the company, resulting in a lower corporate tax liability. It also helps a business to defend its tax position in case of an audit by tax authorities.
We, BMS Auditing help you maintain and prepare the best financial audit statements for MNCs and any corporate organizations.
4. Hire a Registered Tax Agent in UAE
By hiring a good tax agent who has years of experience in UAE and is also registered with FTA (Not all tax agents are registered, FYI), you can do the best tax practice possible. A tax agent is well-versed in corporate tax law and can assist you with the best tax compliance solution possible.
5. Timely corporate tax return filing and payments
Filing corporate tax in UAE and payment of tax liabilities is more important as failing to do so can lead you to pay additional late fees and may even lead to fines and penalties. Businesses may prevent a rushing tax return and any additional fees by collecting documents well in advance of the end of the fiscal year.
It is always advised to take the tax advantages carefully and follow compliance properly in order to minimize corporate tax liability. Else, it might cause penalties, or fine issues and may also lead to taking legal actions by the government itself. Hence, it's better to rely on an accredited tax firm like BMS Auditing.
Corporate Tax Advisors in UAE
Reducing corporate tax liability is an important consideration for businesses operating in the UAE. BMS Auditing is a top audit firm in Dubai and is also the best tax firm in the Middle East that has a team of Tax consultants, auditors and Corporate Tax Advisors in UAE to help businesses to reduce their corporate tax liability by providing expert advice on tax planning, optimization, compliance, and reporting. They can help businesses structure their transactions in a tax-efficient manner, ensure compliance with regulations, and avoid penalties.