Corporate taxes are an important consideration because they can significantly impact all businesses in the UAE. From 2023, the UAE has executed the least amount of corporate tax for businesses that make revenue as per threshold. However, there are several strategies that can help companies optimize tax savings, minimize tax liabilities, and stay compliant with strict protocols.
1) Optimize Tax Incentives
The UAE government offers several tax exemptions and incentives to businesses in certain domains. Such industries include;
- Government Entities
- Extractive Businesses
- Non-extractive businesses
- Public Benefit entities
Such entities can benefit from tax incentives and exemptions. Recently, the MoF also declared a clarification about the decision on corporate tax exemptions for QPBE (Qualifying Public Benefit Entity). To minimize tax liability, businesses must ensure that they meet the eligibility criteria for the Tax Incentives.
2) Design an effective Business Structure
Effective Business Structure can offer many benefits that help to minimize the tax liability of a business. To design an effective business structure, the company can set up a subsidiary company in a free zone, so the corporate tax incentives can be accessible, as well as the ease of doing activities in a designated area. Free zones in the UAE offer a variety of incentives beyond tax exemptions, such as;
- Streamlined customs procedures
- Simplified regulations
- Access to world-class infrastructure
On the other hand, businesses can consider setting up a branch in a free zone as well. Although a branch is not a separate legal entity but is measured as an extension of the parent company.
3) Keep accurate Financial Records
The important strategy to minimize tax liability is to keep accurate financial records. It helps in claiming deductions on business expenses because it significantly reduces the taxable income of the company. Keeping complete financial records also helps a business to protect its tax status in case of an audit request by relevant tax authorities.
4) Double Taxation Agreements
UAE has come into the face of double taxation agreements with many countries worldwide. It aims to stop the double taxation of income made by businesses working globally. So, it is very helpful for the business to optimize structure with double taxation agreements so it can help to minimize tax liabilities on cross-border activities. Farahat & Co. is a very well-known and reputed corporate tax consultant in Dubai that can provide leadership to help how your business structure can be optimized by double taxation agreements
5) Contribute to Charitable Causes
To minimize the tax liability of your business, it is important to be qualified for tax deductions in the UAE. So, make sure to contribute to Charities including;
- Charitable donations
- Contributions to approved organizations
By supporting humanitarian causes, businesses can make an optimistic impact on society as well as reduce their taxable income. Farahat & Co. can help you to maximize tax benefits from charitable giving.
6) Timely Corporate Tax Duties Fulfillment
Timely Corporate Tax Duties Fulfillment and payment of tax liabilities are fundamental for all businesses. Failure to do so can directly lead to paying extra late fees. It may also even lead to hefty fines and consequences. To reduce this risk and minimize tax liabilities, businesses collect documents well in advance of the end of the financial year. It is recommended to take the tax incentives and exemptions carefully and stay compliant properly to minimize corporate tax liability.
Conclusion
Corporate tax can have a noteworthy impact on businesses if you lack a practice of good tax planning. To minimize corporate tax liability in the UAE, there are several best strategies as we discussed above. By optimizing Tax Incentives, designing an effective Business Structure, keeping accurate Financial Records, and implementing tax-efficient practices, businesses can efficiently manage their tax burdens while staying compliant with UAE corporate tax registration obligations.
