In January 2022, the UAE government announced plans for a federal corporate tax on the profit of businesses. Abhishek Jajoo, Founder & Group CEO, AJMS Group, says that the new tax will come into effect next year and that UAE businesses should develop a clear strategy in preparation for the changes.
“The UAE will introduce a federal corporate income tax (CIT) effective for the financial years starting on or after June 1, 2023,” he says. “The announcement indicates that CIT will be payable on the profits of the UAE resident businesses as reported in their financial statements prepared in accordance with IFRS at an initial tax rate of 9 per cent above the threshold of taxable profit of Dh375,000. CIT will apply to all businesses and commercial activities except the extraction of natural resources, which will continue to be taxed at the emirate-level.”
While the relevant legislation has not yet been published, tax and finance teams should work on developing a strategy.
Jajoo says that although some details of the new tax legislation are still unclear, UAE businesses should be aware of the need to plan. “While the relevant legislation has not yet been published, tax and finance teams should work on developing a strategy. Auditors and consultants will be the front runners to assist entities in assessing business implications due to the introduction of the tax laws. These implications may require changes to the legal structure, business model, contracting, transfer pricing, accounting, systems, data, and organisational structure.”
Tax audits play an important role in ensuring tax compliance and to minimise tax gaps.
Armughan Siddiqui, Partner - Tax, AJMS Global, says that UAE businesses should already be using tax auditing to avoid errors in not only future taxation but for existing taxes such as VAT. “As the name itself suggests, a tax audit is an examination or review of the accounts of any business or profession carried out by taxpayers from a tax viewpoint. It makes the process of filing of returns easier.
“Tax audits play an important role in ensuring tax compliance and to minimise tax gaps or the difference between what the tax authority is owed and what it receives.”
He says that comprehensive tax auditing can also be financially beneficial to businesses as it can prevent oversights. “The objective remains to maximise the revenue collection by testing the correctness of sales/revenue declared, collection of output tax, input tax credit claims, and VAT refund claims to assess the level of compliance with the VAT law.
“An audit would entail ensuring the existence, completeness and accuracy of the tax accounting records as well. As part of the audit process, source documentation related to the accounting records will be reviewed for accuracy as well.”
Gopu Rama Naidu, Founder & Managing Partner, KGRN Chartered Accountants, says that in the case of VAT, using consultancy services can be important in allowing UAE businesses to understand tax regulations and any developments in legislation. “With our expertise in offering VAT consultancy services and as a certified tax agent in the UAE, we strive to eliminate VAT compliance burden by giving businesses transparency and understanding of the ever changing tax regulations, thereby helping in improving their risk management and cash flow,” he says.
VAT consultancy services are deemed to be very crucial and important for all the businesses.
Naidu also says that a comprehensive understanding of taxation law means that organisations are less likely to make financial mistakes, which could incur penalties. “VAT consultancy services are deemed to be very crucial and important for all the businesses so they can adhere to the VAT guidelines and VAT filing deadlines. As most of our clients are unaware of the governmental policies, we bridge this information gap and educate them so they can conform to the VAT regulations and avoid paying heavy VAT-related penalties.”
He says that VAT consultants offer a wide variety of services pertaining to taxation and that UAE businesses should expect a thorough and diligent approach to establishing their tax obligations. “Our trained and experienced VAT consultants handle the whole spectrum of tax compliance including – tax: filing, audits, and returns, ensuring a smooth and trouble-free tax process. KGRN aids businesses follow the UAE tax law, while also providing them with advice and recommendations to effectively handle their tax issues.”