Tag: Taxation

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Tax Incentives and Exemptions in the UAE

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If you’re looking to establish a business in the UAE, then understand all the necessary tax laws. Make sure that you follow all of them to avoid any hefty penalties or worse situations. In this aspect, there are certain tax incentives and exemptions in the UAE that you need to know that encourage business growth and foreign investment. 

Overview of Tax Incentives and Exemptions in the UAE

  • No Corporate Income Tax

An attractive feature for a business owner in the UAE is that there is no compulsion of corporate income tax. Most of the businesses can enjoy 100%  of the profits they generate without any burden of paying income tax. Furthermore, this provides an opportunity for the business to reap full benefits by making UAE a highly tax-efficient destination.  

  • VAT Refund Scheme

A 5% VAT is a standard rate that many businesses need to pay. Besides that, there are also certain industries that can benefit from a VAT refund scheme. It majorly includes the industries of tourism, healthcare and education etc. By recovering the VAT you’ve paid on expenses, your business can effectively reduce its operating costs. 

  • Investment Incentives

The UAE government aims to encourage businesses to invest in key industries leading to an increase in economic growth. For this purpose, they provide various incentives to different businesses working in strategic sectors. Therefore, if you’re a business owner working in such a domain, you can avail of reductions in fees, support for research exemptions from customs duties, etc. 

  • Innovation and Entrepreneurship

Different seminars and webinars held all across the UAE help entrepreneurs make use of exciting opportunities. Not only that, it will let your business explore many new aspects and build partnerships all across the globe. Moreover, this element actively promotes innovation and can open up a way of getting many incentives. 

Conclusion

From no corporate tax income to VAT refund schemes, businesses can avail of many incentives and exemptions in the UAE. This makes the UAE an attractive destination where many business owners can invest and initiate expansion. Hence, make use of the opportunities and avail of these tax advantages to thrive in the economic hub of UAE.  

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Excise Tax and VAT: Major Differences

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The introduction of excise tax and VAT in UAE was almost made at the same time between 2017-2018. Although both of these taxes are forms of indirect tax they do have some major differences. Note that these taxes are a source of additional revenues for the UAE government. 

4 Differences Between Excise Tax and VAT

  1. Purpose of Taxation 

In the case of excise tax, the purpose mainly focuses on reducing the consumption of unhealthy goods. Furthermore, it increases the government revenue as well which they can use for public welfare. 

The value-added tax focuses on providing the government with a new source of income. The government can further use this income to provide the public with high-quality services. 

2. Applicable Goods and Services 

Excise tax normally applies to certain products and services which include carbonated, energy drinks, and tobacco. Moreover, it also applies to any drink that provides mental or physical stimulation such as caffeine, ginseng, etc. 

VAT charges are applicable on most of the products and services in UAE. Financial services, residential buildings, and bare land are some of the services which are not liable to value-added tax. 

3. Imposition of Various Rates

The rates of excise rate can vary depending upon the product or the service you’re purchasing. For example, the rate is 50% for carbonated drinks and 100% for energy drinks and tobacco. 

There is a fixed standard rate for VAT in the UAE which is 5%. In a different scenario, zero-rated supplies (0% VAT) are liable to certain products which can be the export of goods, international transportation services, etc. 

4. Liable Business Registration

All those businesses dealing with the import or manufacturing of goods levied excise tax are applicable to register for excise tax. Any business that owns taxable goods but is unable to prove it will also register for excise tax. 

All tax-registered businesses in UAE whether it’s from Mainland or Freezone are liable for the standard VAT charges. If the UAE Cabinet declares any freezone area as a designated zone, then that freezone area shall be tax-free.

Conclusion 

Excise tax and VAT are two different tax systems in the UAE that bring additional responsibilities to businesses. Sometimes people find it difficult to adjust to these different tax systems. Therefore, it is advisable to understand its differences to assist you in dealing with it. 

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Tax Precautions Business Entities Should Take In UAE

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If you’re a startup firm, you should be careful in dealing matters of tax. Tax planning is a crucial step which causes business to manage their financial operations by minimising tax liabilities. Therefore, it is essential to ensure tax precautions to avoid any legal issues, financial penalties, and reputational damage associated with tax-compliance. 

4 Key Tax Precautions For Businesses In UAE

•. Clear Understanding of Tax System

With the introduction of new sorts of taxes such as VAT in UAE, you need to have a clear understanding of them. Whether it’s excise or corporate tax, you have to know when and how to pay them to avoid tax penalties. 

  • Purchase Tax-Assets

If you want to lower your tax-obligations, it is feasible to invest in tax-efficient properties. Purchasing tax-efficient assets can be such as zero-coupon bonds, corporate bonds, and tax-efficient mutual funds etc.  Moreover, it helps to diversify the contribution towards tax efficient account types for reducing the tax burden. 

  • Claim All Expenses 

Recognizing all those expenses incurred by the firm is significant for reducing the liabilities of the tax burden. Once you are able to reduce these costs, the company can avail the tax benefits. This will instantly provide an advantage to the company by preventing them from having to pay taxes. 

  • Investing Overseas

Another tax precaution which your business can take is to offshore the profits of the corporate entity. Furthermore, invest overseas where you can get tax benefits such as zero percent tax on corporate tax. A major reason to do this is to enjoy overseas profit which can’t be charged for corporate income tax in the UAE. 

Wrapping it Up

Before you apply for tax filling, you should do proper tax planning. For this purpose, you need to undertake tax precautions to mitigate the risks of financial penalties and ensure compliance with the tax laws in the UAE. Hence, to minimize any potential issues your company should look out for ways to reduce any tax burdens.  

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Corporate Tax implementation in the UAE

Corporate tax
Corporate tax

UAE authorities have announced the implementation of corporate tax in the country from next year. The decision came out as a surprise to the business community as it was surprising news to them. Many businesses in the UAE have enjoyed zero income tax on their profits which will now change from June 2023. Previously, UAE has already introduced VAT, Economic Substance Regulation (ESR), Excise tax and Country by Country reporting. However, Corporate Tax (CT) will also play a significant role in the evolution of the UAE tax regime. 

The decision came into the consideration of UAE authorities to meet the international standards, by implementing similar decisions to their neighbouring Gulf countries. Also, the UAE wanted to modernise their business environment and boost their economy. Moreover, UAE aims at minimising the compliance burden for startups and small businesses in the country. 

Let’s look at some important points regarding implementation and process of corporate tax in the country;

  • – The corporate tax regime will be effective for fiscal years starting from or after June 1, 2023.
  • – UAE has implemented 9% CT on taxable income above AED 375,000. As for larger multinationals, different CT rates will be applied (will be announced by MoF) that generate consolidated global revenues above  EUR 750m in line with the Pillar Two of the OECD Base Erosion and Profit Shifting (BEPS) project.
  • – Ministry of Finance may announce any further relaxations related to Small, Medium and Micro Enterprises

Exemptions of CT:

  • – Natural resources are exempted from the corporate tax and will be taxed under Emirate level as before. 
  • – Foreign individuals and entities who don’t operate business in the UAE regularly will not be charged with CT.
  • – Income of foreign investors generated from dividends, capital gains, interest, royalties and other investment returns.
  • – There will be no withholding tax on domestic and international level

Businesses should in advance prepare for CT by conducting a review of their entity structure, accounting system and processes, financial model, and conduct audits. Certainly, the introduction of CT will have an impact on the tax compliance and costs of most UAE businesses.  Therefore, it is imperative for businesses to understand the tax implications and make any necessary changes in corporate structure, financial model , reporting system to ensure compliance with the new UAE CT regime.