Businesses with net profits exceeding Dh375,000 now face a flat 9% tax rate Image Credit: Supplied

The UAE has entered a new era in 2023, marked by significant changes in its corporate tax landscape. These changes bring both challenges and opportunities for businesses operating within its borders, reshaping the way they strategize their financial future.

Historically known for its favourable tax environment, the UAE introduced a corporate tax regime in June 2023 as highlighted in Gulf News’ Corporate Tax Event, marking a pivotal shift in its tax landscape. Businesses with net profits exceeding AED 375,000 now face a flat 9% tax rate, with exemptions available for small enterprises. This transformation signals the UAE's commitment to international tax standards and its evolving role on the global stage.

However, the introduction of corporate tax in a previously tax-free jurisdiction like the UAE can pose several challenges to the corporate landscape. One such challenge is that existing corporate structures, especially very large ones that were designed in a tax-free environment, may need to be re-evaluated. Some structures may no longer provide the same level of tax benefits and determining where such restructuring is required is a complicated and daunting process.

Consider the story of a very large UAE-based group facing this dilemma. This conglomerate operated across multiple business lines and entities in the UAE, a blend of mainland and Free Zone companies, each engaged in various activities.

Manali Chopra, Director of Accounting, Audit, & Tax and Compliance, AKW Consultants, speaking at Gulf News UAE Corporate Tax Event

This is where financial consultancies like AKW Consultants shine. In response to this intricate puzzle, a Corporate Tax Impact Assessment was commissioned. The assessment recommended by the financial services’ consultancy was a comprehensive business restructuring plan, suggesting that activities qualifying for tax exemptions be shifted to Free Zone entities. This strategic move would allow the group to harness the available tax benefits while streamlining their operations.

With their expertise in navigating the intricacies of corporate tax law, AKW Consultants proposed a solution that not only aligned with the new tax regime but also enhanced operational efficiency. By moving Qualifying Activities to Free Zone entities, the group was poised to optimize its tax liability while establishing dedicated teams for each line of business.

This story underscores the critical role of financial consultancies in the evolving UAE corporate tax landscape. Companies facing tax-related challenges can benefit from the insights and strategies provided by experts and how these consultancies enable businesses to adapt to change, align with new regulations, and thrive in the transformed corporate tax landscape of 2023.

As businesses continue to navigate the shifting sands of taxation in the UAE, the demand for expert financial services has never been more pronounced and it is through the collaboration between businesses and financial consultancies that success stories like this one come to life.