Now that the dust has settled after the MoF (Ministry of Finance) UAE revealed the introduction of a federal company tax, corporate tax UAE firms must take responsibility for getting themselves tax-ready by June 1, 2023. The country has altered its tax system before.
Everything You Need to Know About the UAE’s New Corporate Tax
The United Arab Emirates (UAE) implemented a 5% value-added tax as a general consumption tax on the taxable supply of goods and services beginning on January 1, 2018. This meant that for the first time, consumers in the United Arab Emirates would have to pay more for taxable goods and services. The implementation of a federal company tax raises crucial questions for firms in the United Arab Emirates.
While the law has not taken effect as yet, the following is what we know: The corporate tax in UAE is a profit-based tax that is collected in addition to other operational expenses in the United Arab Emirates (UAE), such as the cost of obtaining necessary licenses, visas, and medical insurance. The corporation tax rate for businesses operating in the United Arab Emirates (UAE) ranges from 0% to 15%, depending on the company’s net taxable revenue.
Local businesses will pay a 9 percent corporate tax, while international corporations would pay 15 percent of their consolidated income as corporate tax. Companies whose primary business is the extraction of raw materials like oil will be the only ones excluded. Businesses engaged in all other types of commercial activity should prepare for the changing tax landscape now.
Steps Heading Toward the Preparation of Corporate Tax
When the federal business tax is finally enacted, the first step is getting ready for it with internal preparation to embrace and even welcome the change. Businesses operating in the UAE after June 1, 2023, will do so in a tax control tax-controlled on and as such, should ensure they have a thorough grasp of the true picture. Rather than viewing tax and transfer pricing as a compliance issue, shift your focus to the strategic implications they can have.
- Identify the Regime
This may involve starting with a talent map to determine where your staff has knowledge gaps that can be filled by upskilling, training, or outsourcing in the first year. Consider the potential effects on your daily operations, company finances, and growth strategies. The first step in solving any problem is to identify it.
- Spread Awareness
The next thing to do is to make sure there is continual, fruitful contact across all of your organization’s departments and divisions. The aspects discussed in the resealed public consultation document are consistent with commonly accepted tax filing principles, and this allows for inferences to be formed even if the law has not yet been published.
Recent advancements in international and UAE tax law open the way for corporate tax in UAE to have the planned breadth, depth, and breadth of data coverage known as external audit. So, from the company’s owners and board of directors to its key personnel in charge of day-to-day operations, everyone needs to be on the same page about how the company will respond to this change and how it will deal with the financial, operational, contractual, and legal repercussions of the new taxes.
- Evaluate Tax Effects
Third, evaluate tax effects from the ground up rather than from on high. It is human nature to multiply net earnings by the tax rate in order to estimate impacts on tax liability, accounting, and bookkeeping. However, you may enhance how you run today and be ready for tax application tomorrow by doing a detailed assessment of the genuine impact across every level of the business, from transactions to entire business units, and then carving out inefficiencies and developing tax reasoning.
Several different critical success factors can be employed in an effort to enhance your UAE operations’ tax status. For example, you could stick with the status quo in low-risk areas (those with a low probability of requiring significant tax intervention), you could fine-tune high-impact areas with minimal tax intervention (if any), or you could do nothing at all. UAE enterprises can shape their new tax profile and governance framework with a step-by-step strategy, an explanation of the tax effect areas, and a focus on implementation.
- Do the Required Changes
You now need to handle the changes you’ve identified as part of the implementation process. In order to properly adapt to new tax and compliance standards, an organization must first be made aware of and educated on those changes. Although these shifts are initiated at the highest levels of an organization, their effects will be felt throughout the whole company. As a result, it will be essential to have “change champions” and influential people who can steer the ship through the inevitable waves of upheaval that accompany any major organizational transformation.
- Adopt New Standards
The last thing to do is check that your data and paperwork are up to par with regulatory standards. What was formerly thought of as a best practice is now a requirement for legal and ethical conduct. The time has come to pinpoint inconsistencies in reporting to both internal and external stakeholders, with particular attention paid to data quality and security. The time spent today, whether conducting the analysis in-house or consulting an expert, will pay benefits later by removing a potential roadblock to complete compliance with the new federal company tax code.
Seek the Best Advisory Services
One of the best strategies to get to understand the key depths of the upcoming tax regime, you can seek consultation and advisory services from Corporate Tax UAE experts are qualified and can guide you with their knowledge and expertise.
