Every day, in the business world, we hear that enterprises must comply with the relevant laws of the jurisdiction. However, one must grasp the fact that it comes with a price. Similarly, tax compliance is as important as any other business responsibility. In the UAE, corporate tax is liable now for businesses operating in the region. In light of recent legal changes, firms are now concerned about the cost of corporate tax compliance in the UAE. There can be certain costs, hidden, direct, or indirect. In this blog, we are discussing some of the relevant costs resulting from corporate tax compliance.
The Cost of Corporate Tax Compliance in the UAE
In the short term, the cost of tax compliance will result in avoiding penalties and smooth running of the business. Let’s highlight some of the key outlays a business might face operating in the UAE region. Please note that we are here referring to costs other than the tax liability itself.
Administrative Costs
The first and foremost particular for businesses is to upgrade their internal systems, processes, accounting, and reporting systems. The overall goal is to lay a solid foundation for a compliant environment. Furthermore, employees are the key element in this regard; therefore, the organization must make arrangements for their proper training. This should be ongoing as we see a lot of updates in the tax legal sphere. Entities can also hire an external tax expert for proper training during the initial implementation stage of the corporate tax. Similarly, there can be many other administrative costs depending on the nature of the business and other circumstances.
Tech-Related Costs
Some entities might need to upgrade their technical systems, such as accounting software that provides real-time tax reporting. Furthermore, the old-fashioned system of documentation may hinder and slow the overall tax reporting of the entities. Therefore, they might need to upgrade their information technology and other related tech.
In today’s world, with a shift from a paper-based economy to a digital economy, there is a need to protect data. Businesses, typically larger ones, or ones with sensitive data, there is a need to invest in cybersecurity.
Documentation Costs
In light of recent regulatory updates, most businesses operating in the UAE must maintain documents for at least 7 years from the relevant tax year. These include any documents that support the calculation of corporate tax liability or tax status such as exemption. Therefore, firms have two responsibilities in this regard. First, they have to keep proper and accurate documents necessary for the calculation of the tax liability of a tax year. Second, they need to maintain such documents for at least 7 years. This in turn will need entities to invest in this regard as well. For instance, for physical documents, they might need new shelves, or for digital ones, they might need to invest in digital space and security.
Professional Costs
It is evident that apart from just training, firms might need to consult a tax expert or hire tax accountants. There can be certain complex issues where there is a need to arrange an external tax expert. Furthermore, many large firms might need to have special audits just to verify tax compliance with the UAE laws. Again, these all will be available at a cost. Enterprises in the UAE now need to inculcate these costs in their budgets and long-term planning.
Apart from these costs, sometimes an entity might face one-off costs, such as a legal fee, in resolving a certain tax dispute. These are difficult to foresee; however, businesses must be proactive enough to avoid or minimize such expenses.
Other Costs
There can be numerous other costs in response to corporate tax compliance in the UAE. For instance, every business wants to optimize structures and processes in such a way that minimizes tax liability. This in turn requires investments in the relevant structures and practices of the entities. Furthermore, there can be many indirect costs associated with keeping up the tax responsibilities. For instance, the time spent by employees on tax matters rather than on core business activities. During tax-related activities (including audits and inspections), a business might face opportunity costs such as losing sales. The need of the hour is to develop systems to avoid such disruptions.
There can be other costs that might be a result of error or laziness at the business end. For instance, expenses with respect to late filing, errors, and other non-compliance. There can be penalties for underpayment or late payment of taxes.
The Long-Term Perspective
If we look at the short-term perspective, the cost of corporate tax compliance in the UAE might seem high or troublesome. However, if we shed light on the long-term perspective, it is actually for the benefit of the overall business world. Tax compliance brings transparency to the systems and processes and thus increases the credibility of the overall commercial environment. This in turn enhances consumer confidence. Furthermore, the tax collection by the government will result in better infrastructure and, thus higher success rates for businesses. Therefore, overall, the compliance cost will bring massive benefits for the businesses as well as for the overall economy.
Conclusion
The implementation of corporate tax will not just bring costs related to the tax liability; however, there can be costs of compliance. For instance, businesses might face costs associated with upgrading their administrative systems and processes, including training their employees. Furthermore, certain businesses might need to invest in tech, including software. There can be numerous costs depending on the nature and particular circumstances of an entity. However, every business will need to maintain documentation that supports the calculation of tax liability. This will of course bring costs. Moreover, there can be certain professional costs, such as for a tax consultant, and so on. Businesses must ensure that their systems are in line to avoid penalties and follow compliance with the tax law.
Creative Zone Tax & Accounting (CZTA)
Our team has massive expertise in the field of taxation. Therefore, we ensure that the cost of corporate tax compliance is kept to a minimum. The key benefit will be that you will focus on your key business, thus avoiding any opportunity costs; we will manage your tax matters. Contact us today.
