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Maximizing Deductions and Avoiding Penalties – UAE CT

Maximizing Deductions and Avoiding Penalties

As the UAE’s new legal framework concerning corporate tax is in place, every business strives to comply. This includes keeping up well with the relevant laws, thus avoiding penalties. However, the goal should not be just minimizing the occurrence of fines but taking maximum deductions. In the UAE, tax laws benefit businesses, including deductions, exemptions, and reliefs. Therefore, the goal of every business is to take maximum benefits out of these tax incentives within the relevant laws and avoid charges. In simple terms, entities should work on maximizing deductions and avoiding penalties. Let’s understand how we can achieve this aim in this blog.

Maximizing Deductions and Avoiding Penalties: UAE Corporate Tax

The primary concern for every entity is to follow the relevant tax laws. Federal-Decree Law No. 47 of 2022 forms the basis of the corporate tax legal framework in the UAE. Within the law, taking measures to avoid or minimize taxes is tax avoidance. However, one should understand that tax avoidance should not be unethical and not followed only for the sake of tax abuse. Let’s single out some of the best practices that businesses can follow, thus maximizing deductions and avoiding penalties.

Deductible Expenditure

Expenses incurred wholly and exclusively for business are allowable in the relevant tax period. Therefore, any expenses not incurred for business are not allowable for deduction from the taxable income. So, the objective is to have maximum expenses that are deductible under the tax laws.

Furthermore, certain expenses are explicitly not allowable in part or in full. For instance, entertainment expenses are only allowable 50% of the total expenses incurred for entertainment, amusement, or recreation in a tax year. Therefore, entities can have internal limits set so that they avoid non-deductible expenses. Furthermore, some enterprises give massive amounts of money to charities. Under the UAE laws, money spent on charity is not allowable. However, donations, grants, and gifts given to qualifying public benefit entities are allowable for corporate tax purposes. Therefore, entities must look for giving charities to qualifying public benefit entities.

Many other expenditures are not allowable for deduction from taxable income under the tax laws. Therefore, businesses must ensure that such expenses are minimized while allowable deductions are maximized to reduce tax liability legally.

Tax Incentives

Tax incentives include tax credits, exemptions, and tax reliefs. These are primarily for the betterment of the overall economy and the well-being of businesses. Therefore, there is generally no abuse in making use of them. In the UAE, there are numerous reliefs and exemptions to promote businesses and industries. However, there is a special focus on small businesses and start-ups. Let’s see small business relief below.

Small business relief (SBR) exempts certain SMEs from corporate tax; however, there are conditions. Firstly, the revenue of the business should not be higher than AED 3 million in the relevant and preceding tax years. Secondly, the taxable person must elect and meet other conditions of the relief to apply. Ministerial Decision No. 73 of 2023 provides complete details on the relief.

Thus businesses should struggle to achieve maximum tax incentives to reduce their tax liabilities.

Penalties

In our above discussion, we mentioned ways to reduce tax liability within the boundaries of the tax laws. So the point here is that avoiding penalties is easy to understand; just follow the relevant laws and regulations. However, it is dependent on the need to keep oneself educated with all the relevant laws and regulations and the ongoing updates. In this way, you and your business can avoid penalties. In the UAE, penalties are in place in every spectacle of the tax ecosystem. For instance, a taxable person can face a fine if not registered within the timeline set by the Federal Tax Authority (FTA). Furthermore, there are other penalties, for instance, late payment of tax liability.

One of the easiest ways to reduce the occurrence of fines and other related charges is to consult a tax expert. In the UAE, Creative Zone Tax & Accounting is one of the reputed tax consultants.

Conclusion

Every entity in the UAE would like to maximize their corporate tax deductions while avoiding penalties. However, it is not as easy as we say but a doable goal. The first and foremost particular is to keep oneself up-to-date with relevant laws and regulations. In this way, the taxable person can have access to maximum deductions and other tax incentives such as tax reliefs. If everything is done under the relevant tax laws and regulations, we may have some tax savings but also avoid penalties. One way to achieve this objective is to simply consult a tax expert.

Creative Zone Tax & Accounting (CZTA)

Are you confused between maximizing deductions and avoiding penalties? You are in the right place. We have a skilled team that will assist you in maximizing your tax deductions and incentives under the UAE laws. And yes, if you are compliant, there will be no penalties. Contact us today.