4 Tips to Save on the New Corporate Tax in UAE

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Are you anxious about the new corporate tax launched in UAE? Well, you do not essentially have to. Despite the elevating taxes on businesses and the corporate sector, you can still save money through wise planning.

Cutting costs and saving money in your business is crucial in face of the new tax policies and modifications in the financial sector. With less than 6 months before the application of the new corporate tax in UAE, now is the right time to begin introducing small yet major changes in your business to grow revenues and minimize the payment of tax.

What is the Federal Corporate Tax?

The Ministry of Finance in UAE on 31st of January, 2023 announced that a Federal Corporate TAX will be applied to net business profits beginning from 1st of June, 2023. It is important to note here that this new tax is different from the 5% VAT introduced in year 2017. The corporate tax will be implemented at a rate of 9% on all taxable profits that exceed AED 375,000.
Businesses and companies have manifested concern over the news of the latest UAE tax soon to be applied in the marketplace. All organizations are given enough time to plan and prepare things to comply with the tax after it comes into effect later this year. It’s important to note here that the UAE has announced the lowest corporate income tax of 9% in the GCC region.

Objectives of the New Corporate Tax

UAE has grown to be a trade and business hub in the international marketplace over the years. Investors and businesses around the globe are more than ever inclined to step into the UAE market to elevate their revenues and grow their incomes.
The new corporate tax has been mapped out to encompass all the international standard practices and reduce the compliance load on the trade and commerce sector. The federal tax is a step taken by the country to comply with global business standards and develop international credibility.

Also, you must go through the details of the Corporate Tax Law and relevant information available on the official websites of the UAE’s Federal Tax Authority and Ministry of Finance. After exploring the documented figure out if your business is liable to pay the corporate tax. If your company or organization comes under the jurisdiction of the law, check out the exact date from which your business is accountable for the tax. The next step is to prepare and streamline your business to minimize the impact of the new tax.

Tips to Save Money despite the Federal Corporate Tax

If you have been feeling overwhelmed since the announcement of the CT, need not fret as you can still grow your income, let your business sustain and save on operational costs. Here are some tips that will help you along the way.

    1. Dismiss all the Unpaid Debt

      An effective way to minimize the burden of the corporate tax is to identify all old unpaid debts and accounts that may qualify for the tax. Such circumstances arise when a specific amount is to be paid by a customer and it hasn’t been cleared off for long and is contemplated to be that way shortly.

      Usually, this happens because a customer intends to pay the owed amount later in the future. This may cause a reversal on the debt write-off and the following tax relaxation. Thus the process must be handled with the help of a professional legal advisor to combat the complexities that may arise.
      Generally, debt write-offs can help a business save up big amounts of money due to taxes and minimize the burden of corporate tax.

    2. Elevate the Income

      Another suitable way to save on the new UAE tax is to elevate the income level. It means that revenues set to increase in coming years must be accelerated this year. It will help the business to get the benefit of the overall lower federal tax rate. Also, minimizing the operational costs is another good way to minimize the tax for the new financial year.

    3. Introduce Lean Practices

      Introducing lean practices is a proven technique for businesses to tackle unfavorable circumstances. With the constantly changing market trend and the increase of independent contractors, another smart tip to save money each financial year is to make use of the services offered by freelancers, hand over certain business operations to third-party platforms, and work with the latest technologies to digitalize strenuous and time taking chores.

      UAE has been a vocal advocator of the gig economy and has levied special programs and initiatives to promote freelancing and remote working across various sectors. The freelancer-friendly policies and Golden Visa initiative is drawing more professionals and skilled workforce into the country’s ever-growing marketplace. Most businesses now work with a hybrid approach and you can identify functions in your business that you can outsource for the good.

    4. Sign up for Insurance

      Before the application of the corporate tax in June 2023, businesses in UAE can minimize the risks and get a shield by choosing to get the business insured. This reduces the liability of paying tax up to 9%. This is an added benefit for companies and organizations that get reasonable insurance for their employees and workforce.

      Insurance and income taxes go hand in hand and award the entitled business with certain exemptions and tax reductions. You can perhaps think of it as a 9% percent discount for the total cost of the insurance policy.

      Final word

      To determine the actual impact of the federal corporate tax, it’s important to look at the smaller things rather than focusing on the bigger picture.

      It’s quite logical to apply the tax rate to the total income to get a quick estimate of its impact but a wise approach is to critically scrutinize the effect of the new corporate tax on every aspect of the business. This would also aid in identifying flaws and putting them straight to maximize profits and minimize the risk of loss. The agenda is to modernize the whole setup so that it gets prepared to welcome the UAE tax implementations seamlessly. Generally speaking, the newly introduced corporate tax will strengthen the country’s financial market allowing reinvestment into its economic landscape. This will overall elevate the UAE’s credibility as a business-savvy state.

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