Discover effective strategies to reduce your corporate tax liability in the UAE. Learn how BMS Auditing helps businesses stay compliant and optimize tax savings.
The introduction of Corporate Tax in the UAE has motivated businesses to seek legal methods to reduce tax obligations while remaining compliant with the Federal Tax Authority (FTA). With effective tax planning and a clear understanding of tax rules, companies can reduce their taxable income and benefit from deductions and exemptions. Here are key strategies to legally reduce your corporate tax liability in the UAE.
- Utilize Designated Free Zone Tax Benefits
Designated free zones in the UAE offer eligible businesses a 0% corporate tax rate under specific conditions.
Key Considerations:
- Maintain economic substance in the free zone.
- Ensure transactions follow arm’s length principles.
- Conduct most business within the free zone or with international clients.
- Submit audited financial statements annually.
- Fulfill all conditions set by the FTA to maintain the 0% rate.
- Structure Your Business Efficiently
The choice of legal structure significantly affects your tax exposure.
Examples:
- Holding companies can consolidate profits from subsidiaries.
- Ensure that your structure adheres to Transfer Pricing rules for related-party transactions.
- Maximize Allowable Business Deductions
Lower your taxable income by claiming all permitted business expenses.
Common Deductibles Include:
- Employee salaries and bonuses.
- Office rent, utilities, and other fixed costs.
- Depreciation on assets.
- Staff training costs.
- Marketing and promotional expenses
- Leverage Tax Credits and Exemptions
Take advantage of available credits and exemptions under UAE tax law.
Opportunities Include:
- Foreign tax credits under Double Taxation Avoidance Agreements (DTAAs).
- Capital gains and dividend income exemptions (subject to specific conditions).
- Incentives for investments in priority sectors.
- Implement Efficient Transfer Pricing
Businesses involved in cross-border or related-party transactions must adhere to Transfer Pricing guidelines.
Best Practices:
- Maintain proper documentation.
- Price transactions at arm’s length.
- Regularly review intercompany agreements for compliance.
- Leverage UAE's Double Taxation Agreements (DTAAs)
The UAE has entered into DTAAs with several countries, intending to minimize tax on cross-border dealings. These agreements can dramatically cut withholding taxes and other global taxation charges.
- Plan Capital Expenditure Strategically
Investing in assets that qualify for 100% depreciation or other tax allowances can reduce taxable income. Align capital investments with available tax incentives.
- Ensure Timely Filing to Avoid Penalties
Late filings can result in penalties, which are not deductible expenses.
Compliance Tips:
- Submit tax returns before the deadline.
- Maintain accurate and updated books of accounts.
- Follow all FTA rules and regulations.
Reducing your corporate tax liability in the UAE requires strategic planning, proper documentation, and adherence to FTA regulations. By taking advantage of available tax benefits, optimizing business structures, and ensuring timely compliance, businesses can minimize liabilities while avoiding penalties.
Need Expert Support?
BMS Auditing is a certified tax agency in the UAE, offering end-to-end Corporate Tax support—from planning and registration to filing and audits. We help you stay compliant and optimize your tax position with confidence.
Contact BMS Auditing today for exceptional corporate tax solutions in the UAE and across the GCC!
