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How to Prepare for Corporate Tax

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The UAE government just came out with an announcement that is forever going to change the financial layout of the UAE business world, it was the declaration of corporate tax on businesses, effective June 1, 2023. The country has come up with tax reforms before and the industries have integrated it well into their business and come out on top while saving costs and avoiding the last-minute hassles of going through bills and accounts. Businesses need to learn how the tax affects their business operations, revise their business plans, and plan their future developments with corporate tax in mind.

Federal corporate tax is calculated based on the profits of the company, and as for the practises of corporate tax, UAE is planning to follow international guidelines so that it will be easier for foreign businesses to settle in UAE. Businesses whose net profit is above 375,000 AED will be subjected to 9% corporate tax and 0% for companies whose profit is less than 375,000 AED. It is important to note that the corporate tax is calculated based on net profit and not on business expenses.

Another thing to note is that businesses that are directly engaged in natural resource extraction, like oil, are exempt from corporate tax.

How is corporate tax going to affect businesses in UAE

To start, all the businesses will have to start properly tracking their accounts and documenting their bills and invoices to calculate their profits and the tax in effect. The statements and documents on the net profit made by the business will be the basis on which the corporate tax will be calculated. The effects are going to be evident in both local and international businesses. Overall, you get the idea that businesses must put more focus on their accounting systems and make sure that they are kept in commonly accepted standards for easy tax filing. It would be ideal for a business to hire an expert or outsource their accounting to trusted and experienced accounting companies in UAE so that they can cut costs also avoid any unwanted issues of not properly doing the taxes.

Checkpoints to prepare for corporate tax

Accepting the change

First, understand that the tax world of UAE is going to change, and there will be new reforms in finances and the way accounting has been done so far. Be aware of all the rules and details pertaining to corporate taxes, and plan ahead of time on how to change the company's business plan in the future.
Also make use of tax strategies, get advice from experienced accountants, and make use of transfer pricing to make tax cuts and save money. Proper training and preparation of the personnel on corporate tax and new finance habits to get them up to speed are also required.
Awareness and communication of the new tax law

The details and how corporate tax is going to change business operations should be communicated among all levels of the company, and everyone should be aware of their part. This can be done in the form of digital communications, seminars, or even a workshop for the employees so that they will be more aware of the situation. Starting from the top to the bottom, everyone should be aware of the changes and practises to follow. Especially decision-making people who should be aware of the financial and operational changes the company is going to go through.
Assessment of business operations

A complete evaluation of how the business has been running up until now and the proper accounting in each sector must be done, starting from the bottom and working up, this should be done with a tax-oriented mind and logic to figure out where costs can be cut and identify inefficient fund management in any sector. Proper accounting can help down costs and keep everything updated.
Ensuring proper accounting and documentation of the business

To improve the tax efficiency of the company, it is important to make sure that the business is doing accounting according to the standards set by the tax authority of UAE. If there is a flaw in the company's accounting system, it should be identified and corrected so that there are no problems in the future.
Making sure that everything is up to standards

Ensure that all your accounting, financial systems, and documents are up to the standards of UAE tax authority and comply with the new corporate tax laws. When it comes to guidelines and rules, the UAE government is trying to keep up with the international standards of corporate tax, which means the accounting standards and rules that will be followed will be similar too, giving a chance to prepare for the corporate tax. Whether it be internal accounting or any outsourcing, it is crucial to ensure that everything is kept to standards.

It is evidently clear that there are many more steps to prepare for corporate tax, and one of the most important things is to keep up with the standards of accounting for easy tax filing and to figure out where to cut costs. With the help of an experienced accountant who knows the ins and outs of the new corporate tax laws, it is possible to keep up with the updated tax laws and accounting practices.

Alchemist Accounting can assist companies to review their business operations and accounting to help them better prepare for corporate tax coupled with detailed analysis and advice from expert accountants. Reach out to +971582660929 and talk with our expert.