UAE has Implemented a 9% corporate tax in the United Arab Emirates on taxable income exceeding AED 375,000 on 1st June 2023, which requires businesses to adopt smart tax planning strategies to reduce their corporate tax liability while maintaining compliance with the UAE Federal Tax Authority.
The UAE’s corporate tax rate is relatively low compared to other GCC countries. Therefore, it is clear that businesses in the UAE should use smart financial planning techniques to futher minimize their corporate tax exposure.
In this blog, we talk about legal strategies to minimize corporate tax obligations in the UAE.
Overview of UAE’s Corporate Tax
The corporate tax policy in the UAE is designed to promote transparency and support business growth. This initiative supports economic development and prevents tax evasion, helping the country achieve its strategic objectives and flourishing businesses.
UAE Corporate Tax Rate:
- Mainland: All companies other than free zone entities with taxable incomes up to AED 375,000 are not required to pay corporate tax, while companies exceeding AED 375,000 are subject to a 9% corporate tax rate.
- Free zone entities: Free Zone entities are subject to 0% corporate tax on qualifying income and 9% corporate tax on non-qualifying income.
- Multinational Companies: Multinational companies in the UAE with a global revenue exceeding AED 3.15 billion will subject to atleast15% corporate tax under OECD’s BEPS 2.0 guidelines.
- Exemption: Government entities, Qualifying Public Benefit Entities and those engaged in certain natural respource extraction activities are exempted from corporate tax.
- Applicability: All commercial enterprises operating in the UAE are subject to corporate tax, with some notable exceptions.
Strategies to Lower Corporate Tax Requirements UAE.
Businesses in the UAE can optimize their corporate tax liability through strategic structuring, leveraging available tax benefits, and utilizing exemptions. Adhering to UAE corporate tax laws is crucial to ensure compliance and avoid potential penalties.
It is crucial to have a clear understanding of implementing successful corporate tax planning for minimizing corporate tax liability in the UAE.
Partnering with the best corporate tax consultant in Dubai like Jaxa which is also an FTA approved Tax Agent in the UAE is the best option to receive from an for corporate tax services and tax filing in the UAE.
Let us dive into the strategies to reduce corporate tax liability in the UAE:
- Exploring 0% corporate tax benefit in UAE Free Zone
The UAE free zone offers a variety of incentives to attract foreign investment. As the corporate tax framework comes into play, taking full advantage of corporate tax incentives is crucial for business.
Key Free Zone Benefits:-
- Tax Benefit: Many UAE-free zones offer tax exemptions lasting 15 to 50 years, providing businesses with tax-free profits and customs duty suspensions.
- Popular Free Zone: Recognized Free Zones such as Jebel Ali Free Zone (JAFZA) and Dubai International Finance Center (DIFC) make UAE a strategic business destination.
Key factors to keep in mind for Tax-Free benefits
- Maintain a diversified business portfolio to retain tax exemptions.
- Ensure transactions follow the arm’s length principle to avoid tax liability.
- Prioritize international or free zone clients for tax benefits.
- Submit audited financial statements for FTA compliance.
- Stay updated on FTA requirements to qualify for 0% corporate tax.
- Strategic Business Structuring for Lowering UAE Corporate Tax Liability
Choosing the right business structure is crucial for reducing corporate tax liability and maximizing operational benefits.
Thus, the structure of business is a vital factor in reducing corporate tax liabilities. The UAE corporate tax system provides two key business groups:
- Qualifying Groups: A qualifying group forms when a parent company owns 75% of each subsidiary or a third person owns two juridical persons which ownership interest of atleast 75%. While each files separate tax returns, losses can be transferred between the companies to reduce corporate tax liability.
- Tax Groups: In the Tax group structure, the parent company owns a minimum of 95% of each subsidiary, and files a consolidated tax return simplifying compliance.
Partnering with a corporate tax consultant like Jaxa will support you in choosing the most suitable business structure.
- UAE Tax Credits & Exemptions
Under the UAE tax code, various tax relief opportunities allow businesses to minimize corporate tax burden:-
- Foreign tax credit to avoid double taxation
- Tax relief on capital gains when special criteria are met.
- Incentive for qualified investment in selected industries.
- Accurate Financial record-keeping
Maintaining precise financial records helps businesses reduce UAE corporate tax liabilities. This accurate, clear record serves as proof of tax-deductible expenses while staying compliant with UAE corporate tax law.
Our team of corporate tax consultants at Jaxa specializes in preparing accurate financial statements for businesses of all sizes.
- Boost Tax Saving with Deduction
By minimizing deductible expenses, businesses can reduce corporate tax liability in the UAE.
Key business expenses eligible for Tax Deductions in the UAE:-
- Employee compensation and incentive
- Fixed costs like rent and utilities
- Asset depreciation and amortization
- Business promotion and advertising cost
- Professional development and training programs.
- Transfer Pricing Strategies to Minimize Tax Liability In the UAE
Businesses with intercompany transactions must adhere to the Transfer Pricing rules while helping businesses minimize corporate tax liability.
Reducing Tax liabilities with Transfer pricing
- Maintain proper documentation of intra-group transactions.
- Conduct regular audits to minimize tax risks.
- Apply the arm’s length principle for related-party transactions.
- Ensure compliance to avoid disputes with tax authorities.
- Reduce UAE Corporate tax while leveraging loss carry forward
A business that incurs a loss in a previous year can carry it forward to reduce future taxable income and lower tax liability.
Tax loss relief strategies allow losses to be carried forward for future years to offset against taxable income in the future period upto 75% of such taxable income thereby reducing future tax burdens. Qualifying groups may also benefit from group tax relief.
Example: In 2024, a business incurs a loss of AED 500,000. In 2025, it will make a profit of AED 1.5 million. With the loss carryforward, only AED 1 million will be taxed, reducing the corporate tax by AED 45,000.
- On-time filing of Corporate tax filing and payment
Filing corporate tax returns on time helps businesses avoid penalties and unnecessary costs. Proper planning and documentation ensure a smooth process while leveraging exemptions and deductions can minimize corporate tax liability. Partner with Jaxa, a UAE FTA-certified agent, for expert corporate tax assistance.
Other Guide for Reducing UAE’s Corporate Tax Liability
- Keep accurate financial records.
- Pay taxes on time to avoid penalties.
- Stay updated on UAE tax laws.
- Review business structure regularly.
- Utilize tax incentives and deductions.
- Ensure transfer pricing compliance.
Final Thought
A fusion of smart planning and strict adherence to UAE tax laws helps to minimize corporate tax liabilities. Businesses in the UAE can reduce corporate tax liabilities by adopting these above strategies, allowing more room to reinvest the savings into business development for growth and progress. To minimize corporate tax, companies must capitalize on available tax benefits, maximize deductions, and maintain precise financial records.
Consulting with a Top corporate tax consultant can help you in maintaining compliance with UAE Corporate tax compliance and provide tailored tax solutions based on business needs.
Are you seeking expert tax guidance? Reach out to Jaxa Chartered Accountant for expert tax guidance on reducing corporate tax liabilities to provide bespoke strategies to maximize tax savings.
