The recent introduction of corporate tax in the UAE is a landmark development especially for companies operating in the different free zones in the country. The concept of free zones for a long time had been associated with the tax-free zones in the UAE, but with the introduction of the UAE corporate tax rules, new perspectives and issues emerge. It is important to understand the effects of these tax laws on free zone entities. For businesses to be able to deal with this environment, it is essential that they hire a FTA approved tax consultants in Dubai, in order to navigate such complexities.
Overview of UAE Corporate Tax for Free Zone Entities
The UAE corporate tax law came into force in 2023 with the purpose of development of the economy and its compliance with the principles of international taxation. Even though the general corporate tax rate is 9% of the taxable income in excess of AED 375,000, it has certain peculiarities concerning free zone companies. While free zone entities have previously enjoyed tax exemptions, the new rules introduce a number of considerations. Hiring an JAFZA approved auditors in Dubai can assist the free zone organizations in explaining their position with regards to further tax exemption and the places where corporate taxes may apply.
Understanding the Exemptions and Qualifying Criteria
The UAE free zone companies do not pay corporate tax if they adhere to certain conditions, including engaging in business with other companies in the UAE free zones only. Though, if a free zone entity engages in any operation with the mainland UAE, it may lead to the triggering of corporate taxes. This makes it necessary for the business to go an extra mile and try to understand the small print of the regulations. Engaging the services of accounting and auditing firms in Dubai ensures that the business is informed of their legal status and the ability to leverage on the exemptions allowed. Expertise of top charted accountants in Dubai in such areas aids organizations in their decision making and strategic development particularly in the reduction of tax levies.
The Importance of Transfer Pricing for Free Zone Entities
Another important area that has been impacted by UAE corporate tax laws is the transfer pricing. Entities that are established in free zones are also subject to transfer pricing which means that any related party transactions must be made on an arm’s length basis. These rules are not easily understood and their documentation and analysis must be done in a very detail manner. In order to overcome such issues, it is advisable to seek the services of a FTA approved tax agents in Dubai. UAE corporate tax consultants serve a good source of information on how best to plan the transactions in a way that will allow compliance with the transfer pricing rules as well as reduce on tax burdens.
Economic Substance Regulations (ESR) and Their Impact
Another way through which corporate tax laws affect free zone entities is the ESR. Some of these regulations obligate companies to prove sufficient economic presence in the UAE. Some of the exceptions are the free zone entities involved in relevant activities like holding companies or the intellectual property businesses are required to follow the ESR. Non-compliance to these provisions attracts serious consequences. Top chartered accountant firms in Dubai provides valuable assistance on how to prove economic substance and observe ESR. The information provided by UAE charted accountants can assist the free zone entities to work on ways of avoiding the penalties and retain their tax-exempt status.
Navigating the Complexities of Double Taxation Treaties
The UAE has bilateral double taxation treaties with various countries to avoid double taxation and to promote foreign trade and investment. The free zone entities have to learn how these treaties affect the UAE corporate tax laws. Failure to understand these treaties may result to paying taxes twice or failing to claim on a tax exemption. In this case, corporate tax consultants in UAE will be useful in translating the treaties in the right way and explaining the application of the treaties in certain transactions. Best auditing firms in UAE assist organizations to use treaties in a manner that will provide maximum benefits in form of tax relief while at the same time avoiding potential pitfalls.
Why Engaging an Accounting Company in Dubai is Essential?
Hiring accounting service companies in UAE is crucial to free zone companies that want to get legal advice, improve on their tax strategies and gain competitive advantage. Accounting and bookkeeping companies in UAE provide reassurance which enables businesses to concentrate on expansion and increased profitability in a changing regulatory landscape.
We at Jaxa Charted Accountants, UAE, provide strategies to free zone entities enabling them to turn the new corporate tax laws into an opportunity for success.
