When it comes to investing in foreign business or expansion of a business outside the local limits of a country, Dubai is always the first preference of business concerns and entrepreneurs. The reason behind this is the tax concession and tax-free zones which gives an opportunity for new entrepreneurs and prospective investors to invest in Dubai. The government of UAE has launched many programs and initiatives to attract investors to invest in the country. Many business concerns are taking such benefits and exploring new markets. They adhere to the business laws and regulations enforced by the government. Since the time and business environment are changing in UAE and to be in line with the suggestions of The Organization for Economic Co-operation and Development (OECD) the UAE government has announced that is coming up with Corporate tax in UAE which will be implemented from 1 June 2023 onwards.
What do you understand by corporation tax in Dubai?
As the name suggests Corporation tax is a tax levied on the profit of the company. It is collected by the government as a source of income from the taxable income of the corporate concerns. The best thing about corporation tax is that paying taxes on Corporations is more beneficial than paying additional taxes for the individual. To reduce the burden of corporation taxes, tax planning is the most significant way of doing that. It is an ethical way of managing taxes. Since we have enough amount of time to plan the company’s Corporate tax before it is implemented, most businesses are planning to make necessary changes in their businesses to plan it well to minimize the taxes by complying with the rules of the law.
All about the Corporate tax in UAE
So far, the corporate taxes in UAE are only levied on oil and gas companies as well as foreign bank branches. There are many free zones having their own rules and regulations and with some benefits to the companies incorporated with them compared to the mainland rules. One of the major benefits that is offered by most of the free zones in UAE is corporate tax-free period for the businesses incorporated with those free zones.
The Ministry of Finance has come up with the introduction of a 9% federal corporate tax in UAE which will be levied on business profits earned by the corporates. 9% of Corporate tax will be levied on the adjusted profits in excess of AED 375,000 for all the companies in the mainland. The businesses in free zones will continue to enjoy the benefit of a corporate tax-free period as long as those entities comply with the rules of those free zones and do not do any business with mainland businesses.
Now it is clear that this introduction of corporation taxes will bring many changes in the tax system. This will help the Business concern to adopt global practices and do necessary compliance with respect to corporate taxes. The tax will be levied on profit with minimal adjustments and exceptions. This will encourage the business concerns to prepare their financial statements on time and deposit the taxes.
Role of professional and tax consultants in Dubai
With the new amendments and rapidly changing legal and compliance environment, the business concern needs to be ready for compliance and reporting. With the introduction of corporate taxes in UAE, their implications, framework, and reporting will be new challenges. At its initial stage, the compliances will be having global implications by following International accounting and taxation standards. Many aspects will be required to be seen such as corporate structure, business operations, accounting procedures, and documentation. So, it is necessary to hire a specialist in tax and accounting who has a deep understanding of the legal aspects of accounts and taxation. The role of professionals can be explained in different phases.
- The first phase will be an assessment of the impact of corporate taxes. Action plans shall be made related to understanding business and organisation structure, review of transactions, and impact assessment.
- In the second phase, there will be a detailed assessment and action plans will be made. It includes identifying the potential risk and exposure and determining the cost of strategy planning.
- The third phase will be the implementation stage in which the gap in the system will be known. The professional will assist in the implications of corporate taxes and its policies.
- The last phase will be the support system after the implementation of the corporate taxes.
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