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To strengthen the UAE’s efforts to become a global hub, the country announced Federal Law No. 47 of 2022 on corporate taxation. Under the new regime, UAE businesses will be required to pay corporate tax for their first financial year commencing on or after 1 June 2023.
The Gulf state, known for its low taxes, has attracted many people to live and work through the variety of services it offers, and for some, this may seem like a drag on a business’ bottom line.
However, the introduction of the UAE corporate tax will promote healthy and controlled growth in the longer term, eliminating short-cycle bubbles while stabilizing and strengthening the economy. In addition, the introduction of corporate tax will improve the financial accounts of individual companies through audits, as well as a true accounting mechanism that promotes transparency in individual investment opportunities. The government’s reallocation of corporate tax dollars will also have a positive impact on sectors as diverse as infrastructure, technology, transportation and healthcare.
In all UAE jurisdictions, start-ups will be exempted from the AED 375,000 (approximately US$102,000) income threshold. This applies to all UAE companies without distinction as to the business activities, nationality or citizenship of the founders and owners.
With the introduction of new laws and regulations, the key question is whether the UAE mainland or a free zone is suitable for the company.
As a new company, keep the following in mind:
* What is your 1-5 year plan for your new business?
* What is your business activity?
* Who are your current and future customers? Where are they located?
For existing companies:
* How much is current revenue from the UAE compared to revenue from international clients?
* What is your 1-5 year growth plan for your business?
* Where is your office currently located? Is this important to you?
In order to effectively structure your company and maximize your bottom line, businesses must analyze the current revenue percentage split between UAE and international clients, and how this will evolve over the next 1-3 years based on growth plans. This will also help in identifying and formulating future sales and marketing opportunities.
There may be room for division of business units to perform mutually exclusive business activities and operations. This can be facilitated by the introduction of a UAE holding company, which will act as a catalyst for future investments or exit strategies for sub-sectors. Another key factor is your current business location and business activities listed on your trade licence. How important is this to you, your employees and customers?
The cost of relocating or expanding to a new jurisdiction may not always exceed the bottom line in initial savings.
Prepare for corporate tax
Most UAE jurisdictions currently do not require the submission of financial accounts or audited accounts. This will change to ensure a true assessment of companies’ tax eligibility by the Federal Tax Agency (FTA). Therefore, it is best to implement these procedures internally by June 1, 2023, so that all company stakeholders and internal departments can agree on best practices in advance.
Your UAE company bank account must be open and fully operational, and you are not conducting business through a personal UAE or international bank account. If you do not currently meet the mandatory VAT threshold, but expect to do so within the next 1-6 months based on your income projections, it is worth obtaining your TRN number at the voluntary threshold.
By then, you will already be a client of FTA and should see a smoother registration for corporate tax and provide your track record and TRN number to the authorities.
The most important recommendations before change will be based on your business strategy for the next 1-5 years. No one plans not to meet their growth goals, this should be combined with a proactive corporate structure and internal policies from now on, not reactive measures, which in turn will be more expensive if you don’t get it right from the start, Plus a longer program.
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