How to reduce Corporate Tax in the UAE in 2024?

In order to align tax policy with international standards and increase transparency, the UAE has introduced a corporate income tax since 2023. The tax rate is 9% on income exceeding AED 375,000 (approximately US$100,000). This innovation has significantly changed the tax landscape for businesses in the country. International law firm Antwort Law will offer legal ways to minimize your tax liabilities in 2024, while maintaining your competitive advantage.

1. Small business exception with income below the threshold of AED 375,000 (approximately US$100,000): such companies are exempt from paying corporate tax, which allows the state to support small businesses and start-ups, promoting their growth and development.

2. Registering a company in a free zone is one of the most effective ways to avoid paying income tax in the UAE, provided that the income is generated outside the UAE.
Advantages:

- Exemption from corporate income tax;

- Possibility of 100% foreign ownership without the need for a local partner;

- Fast and less bureaucratic process compared to registering a company outside the free zone;

- Free movement of capital and no restrictions on the repatriation of profits;

- Highly developed infrastructure and business support

3. Business Structuring:

• Creation of a holding structure: a company can create a holding structure in which the parent company owns shares in several subsidiaries. Subsidiaries can be registered in different jurisdictions, allowing them to take advantage of different tax regimes;
• Incorporation of separate legal entities: international and local operations can be separated into separate legal entities; for example, a company engaged in exports can register a separate legal entity in a free zone for international operations, and another legal entity in the UAE for local operations;
• Contractual relationships between legal entities: different legal entities may enter into contracts with each other for the provision of services, sale of goods and other commercial transactions, which allows for flexible management of income and expenses by distributing them between different companies.

4. Transfer pricing is an important tool for tax optimization, whereby companies can regulate the prices of goods and services sold between related legal entities.

• Definition of transfer pricing methods: there are various transfer pricing methods such as the comparable uncontrolled price (CUP) method, the resale price (RPM) method, the cost plus (C+) method, and others, the choice of which depends on the specific situation and the nature of the transactions between related parties;
• Documentation and compliance with the arm's length principle: it is important that all transfer prices comply with the arm's length principle, which requires that the terms between related companies correspond to the terms that would exist between independent companies in similar circumstances, for which it is necessary to prepare and maintain appropriate documentation confirming the reasonableness of the transfer prices;
• Analysis and monitoring: Regular analysis and monitoring of transfer prices allows a company to promptly adjust its internal prices to comply with legal requirements and changing market conditions.

5. Financial and tax planning can significantly reduce the taxable base, which includes cost optimization, investment in research and development, as well as the use of tax incentives and deductions for depreciation, employee training, charity and others provided by UAE legislation, as well as asset restructuring, such as selling non-core assets and reinvesting in profitable areas.

While the introduction of income tax in the UAE has changed the tax landscape, there are legal ways to minimize tax liabilities. It is important to consider all aspects and consult with professionals to optimally structure your business. Antwort Law is ready to provide comprehensive support and assistance in navigating the complex tax laws of the UAE. Contact our experts for advice and development of effective tax strategies for your business.

Lidia Ivanova

International lawyer
Antwort Law