May 2, 2023 –
The tax landscape in the United Arab Emirates (UAE) can be complex for startups and small-to-medium-sized enterprises (SMEs) looking to establish and grow their businesses. With the recent introduction of Federal Corporate Tax, understanding the UAE’s tax system and staying compliant with local regulations has become even more crucial for the success and sustainability of these companies. This article discusses five key steps for startups and SMEs in the UAE to navigate the tax system effectively and maintain compliance in light of the new Corporate Tax regime.
1. Understanding the UAE Tax Landscape, Including VAT and Corporate Tax Regulations
Startups and SMEs in the UAE should familiarize themselves with the country’s tax landscape, which includes Value Added Tax (VAT), corporate tax regulations, and the newly introduced Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. The UAE introduced VAT in 2018, and it is levied at a standard rate of 5% on most goods and services, with some exemptions and zero-rated items. The new Corporate Tax, which will be effective for financial years starting on or after 1 June 2023, introduces a 9% tax rate on corporations and businesses, one of the lowest in the world and well below the global average corporate tax rate of 23.5%. By understanding the tax landscape and regulations, startups and SMEs can ensure compliance and avoid potential penalties.
The UAE Corporate Tax regime aims to enhance the country’s position as an international business hub and global financial centre by adopting best practices globally and incorporating internationally known and accepted principles. The new tax regime also includes several exemptions, such as government entities, extractive businesses, non-extractive natural resource businesses, qualifying public benefit entities, qualifying investment funds, and wholly owned and controlled UAE subsidiaries of certain entities, subject to specific conditions and approvals.
2. Registering for VAT and Maintaining Accurate Tax Records
Businesses in the UAE with an annual taxable turnover exceeding AED 375,000 must register for VAT. This involves applying for a Tax Registration Number (TRN) through the Federal Tax Authority (FTA) website. Startups and SMEs should maintain accurate and up-to-date tax records, as they are required to submit VAT returns to the FTA, usually on a quarterly basis. Proper record-keeping is essential for ensuring accurate VAT filings, identifying any tax liabilities, and supporting potential VAT reclaim opportunities.
3. Developing Tax-Efficient Strategies to Minimize Tax Liabilities
Startups and SMEs in the UAE can benefit from implementing tax-efficient strategies to minimize their tax liabilities in light of the new Corporate Tax regime. This may include optimizing supply chain structures, evaluating the VAT treatment of cross-border transactions, and exploring the use of special economic zones and free zones in the UAE, which may offer tax incentives and exemptions. By employing tax-efficient strategies, startups and SMEs can potentially reduce their tax burden and increase their overall profitability.
4. Staying Up to Date with Changes in Tax Regulations and Requirements
Tax regulations and requirements in the UAE are subject to change, and startups and SMEs need to stay informed about any updates that may impact their businesses. This includes monitoring changes to VAT rates, rules, and exemptions, as well as any developments in corporate tax regulations, such as the newly introduced Federal Corporate Tax. Staying up-to-date with tax-related changes enables businesses to adapt their tax strategies and maintain compliance with evolving requirements.
5. Seeking Professional Tax Advice and Guidance to Ensure Compliance
Given the complexities of the UAE’s tax system and the introduction of the new Corporate Tax regime, startups and SMEs should seek professional tax advice and guidance to ensure compliance with local regulations. This may involve engaging with tax consultants, accountants, or legal professionals who are well-versed in UAE tax laws and can provide tailored advice to help businesses navigate the tax landscape effectively. By seeking expert guidance, startups and SMEs can ensure they are taking the necessary steps to comply with tax regulations, minimizing the risk of penalties, and optimizing their tax strategies for long-term success.
Conclusion
As the UAE continues to develop and transform its tax landscape with the introduction of the new Federal Corporate Tax, startups and SMEs operating in the country must be proactive in understanding and complying with local tax regulations. By staying informed about the tax landscape, registering for VAT, maintaining accurate tax records, developing tax-efficient strategies, and seeking professional guidance, startups and SMEs in the UAE can successfully navigate the tax system and position their businesses for sustainable growth. Partnering with Vizier Ventures can provide the necessary expertise and support to ensure that businesses effectively navigate the evolving tax landscape and make informed decisions that align with their strategic objectives, thereby fostering long-term success in the UAE market.
By Darius Jannat at Vizier Ventures
