Tips to Reduce Business Taxes in the UAE

How to Reduce Business Taxes in the UAE?

As a business owner in the UAE, tax is a constant source of worry. You need to ensure a balance between compliance and tax planning to ensure the financial growth of the business. In this blog, we have outlined various tips and strategies that businesses can follow to reduce corporate tax and maximize profit. Let’s get into it!

Tips to Cut Business Taxes in the UAE

- Accelerating income into the current year is a great way to reduce business tax. The best practice is to bring income from the previous year into the current year as soon as possible to generate tax deductions. This practice can help businesses save on tax liability and also ensures a smoother tax filing process.

- Another way is to use a tax planning tool such as a tax loss carryforward to reduce business tax in advance. A tax loss carryforward is a financial asset or income that has been used to decrease taxable income but has not yet been utilized. A business can use a tax loss carryforward to offset taxable income in future years and reduce business tax.

- Also, a business can file its income tax returns accurately and timely so that it can enjoy the benefits of a mandatory corporate income tax rate of 9% on taxable profits of Dh375,000 ($102,000) and above.

- Lastly, the corporate tax rate in the UAE is calculated at 9% of the net profit shown in a company’s financial statement. As a business owner, you must ensure that your financial statements are prepared correctly and filed accordingly for corporate income tax purposes.

You can consider using compliance solutions such as invoicing and filing returns to reduce business tax in the UAE. These tools will help you accurately track expenses and revenues, which will help you, plan your finances more effectively and accurately calculate business tax liability.

Understand Double Tax Treaties

- Understand the benefits of double taxation treaties.

- Make sure your business is meeting all of the requirements to qualify for treaty benefits.

- Utilize tax incentives and exemptions provided by the UAE government.

- Take advantage of tax havens to minimize taxes and increase profits.

- Ensure your income is taxed in a country with a beneficial tax rate.

- Use offshore financial centers to earn income without tax liability.

You can also consider obtaining a tax residency or tax exemption certificate from the Dubai Economic Agency (DEA). These can be obtained by businesses that have an annual income of $10 million or more and can provide benefits such as exemption from income taxes, reduced capital gains tax rate, and income tax holiday programs.

By taking these steps, you can minimize taxable income while increasing profits and income.

Types of business taxes in the UAE

- The corporate tax rate in the UAE is currently 12% on income and profits.

- Certain businesses, such as petroleum and finance, are subject to taxation.

- The corporate tax rate applies to the taxable income of a business entity as a percentage of that income.

- Juridical persons established in a UAE free zone are also within the scope of corporate tax.

- Since federal tax law applies uniformly across all emirates, companies registered with federal tax authorities in any emirate can be subjected to corporate tax rates set by that emirate.

- A corporate tax rate of 6-8% is common for the GCC, but it varies from country to country based on its income tax rate and business structure.

Strategies to reduce corporate tax in the UAE

The UAE has a corporate tax rate of 9% as of now. However, the tax rate will be reduced to zero by 2023. The government has also introduced a 5% VAT in 2018. These steps will provide a solid fiscal framework for businesses.

Companies in the UAE can claim tax back from the tax administration. This is possible if they are registered as a taxable person in any of the income tax authority's jurisdictions and satisfy the income tax requirements of that jurisdiction.

Businesses in free trade zones can also enjoy exemption from corporate tax. They are required to pay income tax only on their income from business activities in the zone.

What is Tax Planning and how can it help?

Tax planning is a strategy utilized to reduce the tax burden of a business. Through tax planning, businesses can minimize the taxes they have to pay and maximize deductions to reduce taxable income. This helps a business in saving money and making profits.

Tax planning strategies include becoming familiar with tax laws and regulations, maximizing deductions, and understanding the tax implications of transactions. By becoming familiar with tax laws, businesses can know the limits of their deductions, which helps them save tax. This also allows businesses to plan for future transactions.

Furthermore, businesses should be aware of tax exemption opportunities provided by the government and utilize them to the fullest extent possible. This will help them save tax as well as time and money. Overall, tax planning is an important part of a business’s financial planning process as it helps businesses minimize their tax burden while maximizing profits.

How to minimize taxes in the UAE?

Reducing business tax in the UAE is a complex task. While businesses are encouraged to pay taxes, it is vital for taxpayers to plan and execute their business tax efficiently. There are various steps that can be taken to reduce business tax in the UAE, such as restructuring your business for tax effectiveness, taking advantage of free zones that guarantee 100% private ownership with the repatriation of capital and profits, considering treaties between the UAE and your home country, utilizing harmful tax methods and keeping taxable profits below AED 375,000. These steps will help businesses minimize their tax liabilities and increase their profits.

Conclusion

Besides tax planning, you can opt for a variety of tax-saving strategies like tax-efficient investments, tax-saving vehicles, and tax-efficient structuring of transactions. You should also take care of double taxation treaties and corporate restructuring to cut corporate tax in the UAE. You must understand the tax laws of the UAE and compare the tax implications of various business options available to you. These will help you reduce business taxes in the UAE.