With the introduction of corporate tax in the UAE on June 1, 2023, entrepreneurs are now facing new tax challenges. Businesses with an annual profit exceeding AED 375,000 are subject to a 9% tax rate. Individuals and freelancers remain largely unaffected unless they operate a business or act as natural persons through a registered company.
Many business owners are now exploring ways to optimize their tax burden. Below, I have summarized a few strategies based on my consulting experience:
- Asset Allocation: Business owners can structure salaries, bonuses, interest, and rental income in a tax-efficient manner. It is essential to adhere to regulations to avoid any misuse.
- Utilizing Depreciation: Depreciation on real estate and business assets can be leveraged as a tax advantage to reduce the tax burden. Investments in infrastructure or other capital assets are deductible under the CIT framework.
- Free Zone Companies: Businesses in specific free zones continue to benefit from tax exemptions, provided they do not engage in harmful activities. Business owners should assess whether their company qualifies for these benefits and which activities retain the tax advantages.
- Double Taxation Agreements (DTAs): The UAE has signed numerous DTAs with other countries to avoid the double taxation of businesses. Entrepreneurs with international operations should explore how to utilize these agreements to their advantage.
- Employee Compensation: Businesses can design employee compensation packages to be tax-efficient, such as through bonus structures or the use of tax-free benefits.
Looking ahead, business owners and entrepreneurs should closely monitor the evolving tax landscape in the UAE to take timely action. This is particularly relevant for companies operating both domestically and internationally.
