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How to Structure Your Company for Optimal Tax Savings?

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Navigating the corporate tax landscape in the United Arab Emirates is essential for businesses incorporated in the Mainland, Free Zones, or Offshore jurisdiction. The country has a fast-growing and dynamic business environment, making it crucial for business owners to stay updated with tax laws and regulations.

Apart from the growing economy, entrepreneurs and investors must also consider the impact of corporate tax on new businesses registered in the UAE. The corporate tax rate is flat at 9% for all businesses. However, companies can leverage corporate tax consultants like Avyanco for strategic tax planning to minimise liabilities.

At Avyanco, we understand the complex and ever-changing regulatory environment. As experienced tax advisors, we aim to simplify the UAE tax landscape for you and provide the right guidance to form a company in Dubai.

The Jurisdiction Dilemma: Mainland, Free Zone, or Offshore?

In Dubai, you have multiple jurisdictions to set up a business, and each has its own merits and demerits.

Mainland

Mainland companies must comply with UAE Commercial Companies Law. Therefore, they are subjected to corporate tax. If you register a company in the Mainland, you must register for corporate tax and pay timely taxes. Delays or failure to pay CT can result in penalties.

If you want to know more, we have a separate guide on the UAE Corporate Tax for Mainland Companies that you can go through in detail.

Free Zones & Offshore

Free Zones are exempted from corporate tax as long as they fulfil certain conditions. Any Free Zone business is subject to corporate tax if it conducts business with a company in the Mainland. Offshore companies engaged in qualifying activities are not subject to corporate tax in Free Zones. However, they must still register for corporate tax and file returns.

The New Game-Changer: Corporate Tax in the UAE

Companies in the UAE have enjoyed a corporate tax-free regime for more than a decade. However, recent developments in the Dubai tax landscape have introduced the implementation of Corporate Tax in the UAE starting June 1st, 2023.

Companies effectively managed and controlled or doing business activities in the UAE are subjected to corporate tax now. Dubai has been a main attraction for investors due to the law-free environment.

However, this new change in the tax regime requires investors and entrepreneurs to reevaluate their strategies. They must also carefully study the new corporate tax law to understand how it affects them based on the nature of their business activities.

Turnover Matters: Tailoring the Choice to Your Business Size

Whether we talk about taxation or jurisdiction, one of the most important metrics to consider is your business turnover. Businesses with a decent annual turnover often get confused between choosing Mainland and Free Zones. Here’s what our experts recommend in this scenario.

“As long as your turnover does not exceed AED 3 million in one financial year, you have the flexibility to choose any jurisdiction.”

This enables smaller enterprises to enjoy the flexibility to select a setup that better aligns with their operational needs and business goals.

As mentioned below, corporate tax liability also depends on your total yearly profits, revenue, and other instances.

  • Businesses with a net yearly profit of less than or equal to AED 375,000 are liable to pay 0% corporate tax.
  • Businesses with a net yearly profit of more than AED 375,000 must pay a flat 9% corporate tax.
  • If the company has a business that comes under qualifying activity, then it must change jurisdiction and have it transferred to one of the designated free zones so that it can take the benefit of 0% corporate tax in the UAE.

Navigating Corporate Tax Liabilities 

The introduction of CT in the UAE landscape has changed the business ecosystem significantly. The new tax laws affect almost every business, especially those in the Mainland.

Here are some key steps on how you can navigate the UAE tax landscape:

Review Your Tax Structure

Analyse the current structure of your business and check how it is taxed to find issues or things to improve. Carefully review your company’s structure and how it can impact overall taxation. Finding areas of improvement can result in major tax savings.

Review Your Turnover

If the companies turnover is more than 3 Million Dirhams, however if the company is doing business of third-post shipment (distribution) activity, then the company must choose designated free zones in UAE to avail 0% corporate tax benefit.

Review your business operations

Engage a corporate tax advisory firm to understand how corporate tax will affect your business operations. This will enable you to consider potential costs and adjust your financial projections appropriately.

Plan International Tax Strategies

Businesses operating globally can leverage foreign tax treaties, international tax jurisdictions, and cross-border tax planning to reduce taxes. You can set up transactions and profits across countries to legally minimise tax obligations.

Executing Tax Mitigation Tactics

To reduce your tax liability, you can leverage deductions and exemptions. This will legally minimise your net payable tax. For example, revenue that is reinvested for business growth is exempted from taxation. You can also use applicable tax credits to lower the taxable amount as much as possible.

Keep Detailed Financial Records

Keeping accurate and detailed financial records shows that you comply with accounting standards diligently. It also assists you with tax planning and avoiding fines due to non-compliance. You must engage professional accountants to streamline the process, maintain accuracy, and optimise taxes.

Stay Updated on Changes

UAE has a dynamic taxation system. You have to keep learning about new reforms to ensure your tax strategy is correct and complies with the latest FTA guidelines.

Design Optimal Corporate Framework

Your ownership model and the legal entity type have a significant impact on taxability. You can plan to restructure holdings, subsidiaries, and groups to enjoy lower tax rates based on entity type and jurisdiction. 

Get Expert Guidance

The best way to deal with the new corporate tax regime is to partner with a corporate tax accounting firm. A qualified accounting professional can offer the right guidance to ensure compliance. At Avyanco, our expert accountants identify the best strategies tailored to your business activities. 

Avyanco: Your Partner in Tax Planning

Navigating the corporate tax landscape in Dubai is crucial but complicated. Hence, investors and entrepreneurs must seek assistance from an experienced and reliable tax advisor like Avyanco.

Our corporate tax experts have years of experience with UAE’s consistently changing tax landscape. We understand the nuances involved to help you create a tax strategy tailored to your specific business scenario.

We help you with tax planning, structuring, bookkeeping, and overall compliance. Our tax advisors work with business owners and investors to ensure their businesses remain compliant while optimising and reducing costs.

Conclusion: Informed Decisions for a Prosperous Future

As Dubai’s business landscape continues to evolve, business owners and investors must constantly educate themselves about taxation and compliance associated with company formation. Considering factors such as business turnover, global trade, applicable taxes, compliance, and advice from a trusted tax consultant can help you make smart choices.

If you seek professional advice to start a company in Dubai, please feel free to contact Avyanco. We help you navigate the complex tax landscape in the UAE. Together, we build a solid foundation to ensure a successful business venture and a compliant future for you.

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