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How To Prepare For 9% Corporate Tax in Dubai! (2024 Guide)

Table of Contents
Introduction

In the UAE, corporate taxes are typically due annually and preparing for these payments in advance can help a business avoid any last-minute scramble for funds. This preparation can involve forecasting the company’s tax liabilities, setting aside money for taxes, and developing a payment plan.

By having a clear and comprehensive plan in place, a business can minimize the stress and uncertainty associated with tax season and ensure that it has the financial stability to meet its obligations and grow its operations over time.

Before we deep dive into the “Hows” of preparing for corporate tax rate UAE, it is important to understand why it makes sense to stay prepared for what’s coming.

Preparing for Corporate Taxes is Important for Several Reasons
Compliance with Regulations

In the UAE, just as anywhere else, corporations are required to file and pay taxes in accordance with the law. Preparing for taxes helps ensure that you are in compliance with these regulations and avoid potential penalties or legal consequences, and of course loss of goodwill in that scenario.

Accuracy in Allocating Capital Spends

Inflation, recession or economic boom, if your account processes are streamlined to fit the tax regime, you are clear in allocating capital spends towards other initiatives.

In addition, you may also be able to explore other avenues and investments well in time like expanding your business or improving operations or more opportunities depending on your industry and niche, to save further taxes.

Accurate Financial Reporting

The integrity of your company’s financial statements matters when it comes to building and maintaining trust with your stakeholders.

Whether you are set up as an independent entity or a branch office operating in the Free Zone or on the Mainland, accurate financial reporting is key to get clarity on where you stand and how you can pave the path forward

Improved Cash Flow Management

Improved cash flow management is one of the key benefits of preparing for corporate tax in Dubai. Effective tax planning can help a business optimize its cash flow by ensuring that it has the necessary funds available to pay its tax liabilities on time, reducing the risk of late payment penalties or interest charges.

Additionally, by having a clear understanding of its tax obligations, a company can make informed decisions about when to make investments, pay dividends, and manage its financial resources, which can help it maintain a healthy cash flow

Financial Planning

When preparing for corporate taxes, it’s important to have accurate financial information, including records of income and expenses, as well as balance sheets and cash flow statements. This information can be used to calculate the tax liability and ensure that the company is able to meet its tax obligations. Proper financial planning also involves considering potential tax implications of business decisions, such as changes in ownership or expansion into new markets.

By preparing a comprehensive financial plan, a company can make informed decisions about how to allocate its resources, prioritize expenditures, and reduce the risk of financial hardship.

In short, corporate tax planning for company in UAE can help you minimize your company’s tax liability, improve cash flow management, and ensure that you are able to meet your obligations in a timely and efficient manner.

Now, let’s understand how to prepare for corporate taxes in Dubai.

 
Determine your Company’s Tax Residency
It is important for companies to determine their tax residency status in the UAE as it has a significant impact on their tax liability and obligations.
 
In Dubai and the UAE, a company’s tax residency refers to its status as a tax resident or non-resident in the country. The tax residency status of a company determines whether it is subject to tax on its worldwide income or only on its income derived from sources within the UAE.
 
A company is considered a tax resident of the UAE if it has its effective place of management within the UAE, or if it is managed and controlled from the UAE.
 
On the other hand, a company that is managed and controlled from outside the UAE is considered a non-resident company and is only taxed on its UAE-sourced income.
 
Typically, the tax residency status is determined based on a range of factors, including the location of the company’s management and control, the location of its registered office, and the location of its core income-generating activities.
Determine the Tax Liability of your Business

You need to first identify which taxes your company is subject to. This will depend on the type of business you have, its location (Emirate, Mainland, Free Zone, Industry, Line of Business, Resident or Non Resident Status) and other factors.

Some common taxes that companies are subject to in the UAE include value-added tax (VAT), corporate tax, and income tax.

Once you have identified the taxes that apply to your business, you will need to calculate your tax liability by taking into account your company’s

  • Taxable income
  • Tax deductions
  • Tax credits.

It’s important to stay informed about tax laws and regulations in the UAE, as these can change over time. You may also want to consider working with an experienced corporate tax consultant like Horizon Business Consulting to ensure that your company is fully compliant with all tax obligations and to get help with tax planning and preparation.

Register for a Tax Registration Number (TRN) or Tax Identification Number (TIN)

Once you have determined your company’s tax residency status, the next step is to register for a Tax Registration Number (TRN). Also knows as the TIN (Tax Identification Number), this can typically be done online or through the Federal Tax Authority (FTA) in the UAE. The registration process involves submitting the company’s details, including its legal name, tax residency status, and type of business.

Register for Value Added Tax (VAT)

All businesses with an annual turnover of more than AED 375,000 must register for VAT.

Once you have obtained your TRN and any necessary licenses and permits, you can register for Value Added Tax (VAT). This involves filling out an online application and providing relevant information about your company and its operations.

Register for Corporate Tax

In the UAE, the implementation of corporate tax is set to commence from the first financial year starting on or after 1st June 2023. All companies, including the ones operating in free zones, should register for corporate income tax, regardless of their existing VAT registrations.

The Emara Tax portal on the Federal Tax Authority’s (FTA) website facilitates this process, offering a seamless registration experience. The registration process is simple, and it won’t take more than 30 minutes to complete the process. A comprehensive video guide is available on the website for FTA to assist businesses. Even companies that have already registered for VAT and Excise Tax can complete their corporate tax registration through the portal.

Businesses that aren’t currently registered for Excise Tax or VAT first need to create a new user profile on Emara Tax. Next, they need to choose corporate tax registration and complete the application process. For your application to be successful, it’s imperative to furnish accurate information and update the supporting documents.

Necessary Documents for Corporate Tax Registration

The necessary documents to complete corporate tax registration of Legal Persons include:

  • An Emirates ID of the authorized signatory
  • Proof of authorization (POA/MOA) for the signatory
  • Trade license or business license
  • Passport

The FTA requires businesses to provide accurate percentages of shareholding that correspond to the actual holdings of the owners and align the date or incorporation with the commencement date of the company as per the MOA. Entities must also provide the tax period. Businesses willing to form a Corporate Tax Group have to register individually. They have to obtain a Tax Registration Number and apply to establish a Corporate Tax Group at a later date, according to FTA’s guidelines.

Maintaining proper accounting records

The corporate tax law in the UAE makes it mandatory for businesses to maintain specific accounting records. Companies must seek assistance from professional teams for compliant bookkeeping and accounting. Reputed tax consultants in Dubai can provide you with the necessary assistance and advice in this regard.

File a Corporate Tax Submission

This is a crucial step that businesses must complete once the first taxable period comes to an end. Even if your business qualifies for tax exemption, you need to file a tax submission with the FTA.

Corporate Tax Rates Businesses Musk Know

The corporate tax rates in the UAE are based on annual net profits.

Tier 1: For companies with annual net profits up to AED 375,000, no tax has to be paid

Tier 2: For companies with profits of more than AED 375,000, a 9% tax rate has to be paid

Tier 3: Large MNCs need to pay tax at a different rate as per OECD Pillar Two guidelines

Corporate Tax for Free Zone Companies

Contrary to common belief, free zone businesses aren’t completely exempted from corporate income tax. However, Qualifying Free Zone Persons may not have to pay tax once they fulfill criteria like making qualifying income, maintaining adequate substance, and adhering to the requirements of transfer pricing.

Relief for Small Businesses

If the revenue earned by your business is below AED 3 million per tax period, you can qualify for exemption from corporate income tax.

Calculating Taxable Profit

Taxable profit is calculated by deducting expenses related to business from revenue. Special rules apply for expenses such as interest, salaries, foreign branches, and entertainment.

Differentiating VAT and Corporate Tax

Businesses in the UAE collect VAT from customers while selling products or services. On the other hand, they pay corporate income tax on their annual net profits. Therefore, VAT-registered businesses should also register to pay income tax.

What are the administrative penalties?

Businesses in the UAE failing to adhere to corporate tax regulations may face administrative penalties ranging from AED 500 to AED 20,000 from 1st August 2023.

The FTA has launched an extensive awareness campaign to help the business community understanding the implications of corporate income tax. This educational initiative includes several workshops, sessions, and webinars to provide in-depth insights into the Corporate Tax Law. This will help foster a culture of self-compliance among businesses. Both taxpayers and the broader business community will benefit from this programme.

Notably, virtual workshops conducted in Arabic and English on ‘Corporate Tax Registration’ cover critical aspects, including the creation of a new user profile on the Emara Tax portal, necessary documentation, application procedures, and obtaining a UAE Corporate Tax Registration Number.

CONCLUSION

GenZone has expert corporate tax consultants in Dubai to assist with Corporate Tax Registration in the GenZone. We guide you through the process of registering a business for corporate income tax purposes. We help you gather the required document for corporate tax registration and assist you submit them with 100% compliance.

GenZone provides guidance on the tax implications of different business activities, helps with the preparation and filing of annual tax returns, and can represent businesses before the Federal Tax Authority (FTA) in case of any audits or disputes.

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