UAE business sectors are abuzz with the noise of the Corporate tax regime that was recently introduced by the Federal Government, stating that along with VAT all businesses will have to adhere to Corporate Tax, with some exceptions as well. To be exact, the tax rates are 0% for taxable income up to AED 375,000 and 9% for taxable income above AED 375,000. Also known as “Business Profit tax” as it is levied on the net profit or loss of business, this regime has cemented UAE’s position internationally by complying with global standards yet at the same time has maintained its position as the most attractive investment opportunity for international investors.
The regime is becoming effective for financial years starting on or after June 1, 2023, with a documentation basis the same as being recorded for VAT. With the introduction of Corporate Tax, it has become the utmost need for every eligible business to have corporate tax planning in place to prepare and comply with the obligations. The best way to go around the need of the hour would be to consult with providers of tax services as they’ll have expertise that goes into tax planning and will mold it tailored to what your business needs.
Tax Planning Significance
Tax planning consists of getting an analysis done of the financial situation or structure that a business has in place to confirm that all the working aspects will eventually result in the lowest tax payments possible. Your tax planning will be considered efficient if its consequences will lead to lower tax payments than the previous payments. Every business constructing a financial plan needs to have tax planning as part of it for reaching integral results. As per federal authorities, there are certain tax liabilities that are obligatory for individuals and businesses, but it is the expertise of tax consultancy providing tax services to minimize the payable income while adhering to legal and accepted measures.
Planning Corporate Tax
UAE Corporate tax will be applied to all commercial and business activities, other than the exemptions mentioned by FTA, but the overall vast majority of the corporate sector will be affected by the regime. Ideally, a Corporate tax regime has been put in place to lower the compliance cost of business and compete globally, the true essence of which can be obtained if businesses focus on fruitful corporate tax planning. The taxable entities are responsible for ensuring that tax returns and supporting documents submitted are authentic, complete, and in compliance with the UAE Corporate Tax Law. This can be achieved only if functional corporate tax planning has been done before time by the entities to avoid any discrepancy.
Distinct Characteristics of Corporate Tax Planning
Corporate Tax Planning and tax services provided in UAE will aid small to large sector entities in maintaining tax compliance. Tax advisories and consultants are able to extend their knowledge and experience that is specialized in making compliance easier for a wide range of businesses. Generally, their tax services will consist of the following:
- Supplying eligible tax optimization staying within the legal framework
- International tax planning services custom to the requirements of business operations
- Managing tax risks
- Keeping entities in touch with regular tax services updated
- Ensuring accurate tax filing through reliable tax planning provided
- Making use of legal exemptions in order to minimize tax liabilities for entities
- Tax planning is done in a way that brings out long-term tax benefits as provided by the federal authorities
In order to do all of the above-mentioned tax services, it is vital for service providers to have an elaborate understanding of the business they’re working with, only then it will be possible to deliver tax planning that is custom-tailored to the requirements of the business. It should also be noted that a vital part of tax planning should be staying informed of the new legislation and having a keen understanding of them before they cause a negative impact on business operations. This can be best achieved when tax services are provided from a global approach rather than just focusing on the limited legislation information at hand. Tax planning will turn out fruitful only if worldwide expertise is extended that meets the expectations and custom situations faced by businesses belonging to their respective industries.
Tax Return Filing
One of the major fragments of tax planning is tax return filing, which also goes out to be a vital part of the corporate tax regime. Other than ensuring your tax services are in compliance with the standard regulations and are being dealt with efficiently, a business needs assistance with filing tax returns, which in the case of corporate tax will be done annually. At this stage tax planning will include guidance on tax calculations, supplying tax planning advice along with preparation of relevant information documented and submitted as required by the law. Further understanding of tax planning in this matter can be found below:
- Review of the financial statements prepared, ensuring it is achieved as per international reporting standards
- Identifying taxable adjustments in compliance with the corporate tax regime
- Preparation of adjusted financial records specifically for corporate tax purposes
- Calculating adjusted earnings before interest, tax, depreciation, and amortization
- Finalize and file the corporate tax amount along with the required supporting evidence
- Having post-filing tax services available for further assistance
Implementation of Tax Planning
After deciding on the route, you’d take that’ll best benefit your business, the time comes for the implementation of that plan and how it’ll get incorporated into the business activities. Ideally, your planning will include talent mapping, identifying gaps within the expertise that already exists in the business, and lastly addressing them head-on with upskilling, training, or outsourcing whichever suits the industrial circumstances the best. Your tax planning can provide you assistance in implementing the beneficial structure of the entity that will further make your registration for Corporate Tax easier. It’ll also become easier for the business to understand arm’s length pricing and how or if transfer pricing will affect the nature of their business. Furthermore, tax planning is not just maximizing your tax returns, it can assist your need for modification of a chart of accounts and whether there’s a need for further training and understanding within the business to deal with corporate tax legislation.