What all precautions can be taken by the business entities in the United Arab Emirates before the implementation of tax

Corporate Income Tax is a form of direct tax levied by the Government or the federal authority on the profit of a corporation or other business. Tax planning is crucial for any budgetary efficiency that has to be conducted in the firm. Planning makes the firm efficient and helps the firm  reduce its tax liability. Tax Planning helps the firm to increase their productivity, minimize litigation, reduction in tax liability, and also help maintain economic stability in the United Arab Emirates.  

Here are some of the precautions that can be taken by the business entities to save them from the tax burden. 

By accelerating the depreciation charges for the assets in the firm ;

Depreciation refers to the decreasing value of an asset that is in use in the entity, by accelerating the depreciation charge of the Assets of the company, allows the company to charge a higher rate of depreciation than the actual rate which is valued before, which helps the firm to out show a reduced profit where we can benefit in tax reduction as the profit calculation gets reduced in the books of accounts.  

Invest in tax-efficient assets

 It is always better to invest in tax-efficient assets such as corporate bonds & diversifying the contribution towards tax efficient account types for the reduction of tax burdens. Tax-efficient investments can be made to inflation-protected bonds, zero-coupon bonds, tax-efficient mutual funds, etc.

Opting the tax-efficient investments

Another one of the precautions which can be taken is that, offshoring the profits of the corporate entity and investing overseas where there are tax benefits such as Zero percent tax on Cooperate Tax. Shifting of the profit and investing in offshores helps the entity to enjoy zero percent tax rate, as the profit which is generated offshores can’t be charged for the Cooperate income tax in U.A.E, these measures can be only taken for large cooperate bodies as it requires huge capital. 

Read More: What is Corporate Tax in UAE

Investment in plant and machinery or other long-term assets

While investing in plants and machinery or any other long-term assets, makes the firm create a depreciation charge for these assets which will help the firm to have a tax benefit from reducing the tax liability.

By claiming all the expenses incurred by the business entity

Tax reduction refers to the claiming of those expenses which can be reduced against the taxable income, therefore recognizing all the expenses incurred by the firm is one of the crucial steps which has to be considered for reducing the liability of the tax burden. By claiming these expenses it helps the firm with tax benefits which will automatically help the firm by saving from paying the tax.

By introducing various incentives for the employees in the firm

Awarding stock options is one of the major tax reduction options which has been adopted by large multinational companies, where a set of shares at a specific price is awarded to the employees of the firm, which in the future helps the companies to report a larger percent return or profit to their shareholders while reporting a smaller profit to the internal revenue service, which  helps in the reduction of taxes. Various other schemes can also be introduced by the firm to obtain tax reduction, such as employee incentives can be given, education fees for the children of the employees, benefits given to their families etc. This helps the firm to recognize an expense incurred by the firm and reduce their profit margin and increase the productivity of the employees of the firm.

Read More: What Information Must be Included in Your Tax Invoice In UAE?

Some of the points to be considered before tax filing are as follows;

The firm should give correct and relevant information before tax filing to the authorities for documentation purposes.

The firm should be well informed of the applications of the tax laws and court judgments on the same.

The tax planning should be done completely under the purview of the law which has been stated by the ministry of finance of the United Arab Emirates.

The tax planning should be done  in consideration with the business objectives and the flexibility of the future incorporations and changes that will be conducted in the firm for tax benefits and future implications. 

Proper tax planning should be done before tax filing, as poor planning will lead the firm to probably pay more than the actual taxable amount. 

How can CDA help business entities in UAE? 

CDA is one of the leading audit firms in Dubai which provides high-quality Accounting, Auditing and Assurance, VAT, Business, Accounting Software, and Payroll services to meet your business needs. The tax consultants provided by CDA are highly certified and experienced chartered accountants with necessary industry-specific experience in taxation. In accordance with the FTA's norms and regulations, we offer the best VAT Accounting Services in the UAE to our clients.