What are the essential steps and considerations businesses should undertake to prepare effectively for UAE corporate tax filing?
For businesses, tax filing is a formidable task filled with numbers and calculations. Many businesses approach tax filing with utmost care and focus, as it can be quite challenging. Since UAE corporate tax rules might be new for many, it is essential to prepare thoroughly to efficiently and accurately file your income tax return.
Corporate Tax Filing Basics
Corporate tax in the UAE is calculated based on the net profit shown in the company’s financial statements. To file tax returns, you need to organize specific financial documents to accurately calculate the corporate tax you owe. Key documents include:
Financial statements for calculating taxable income
Receipts for deductions to be claimed
Financial statements for estimating exempt income
Records of exemption status
Business loan documents signifying interest paid
Transfer pricing records
Records of foreign tax paid, if any
Ascertaining Tax Implications
After gathering the required documents, you need to analyze your business areas to understand the corporate tax regime’s implications on your operations. This is crucial for accurately assessing taxable income and complying with all rules before the tax filing period.
Key Business Areas to Analyze:
Financial Status:
Tax is calculated based on your business’s financial statements. Analyze your accounting policies and review accounting entries and disclosures. Focus on depreciation, amortization, provisioning, and revaluation to get accurate figures for determining taxable income. Also, understanding permissible deductions under UAE corporate tax can save you money in the form of tax deductibles.
Operational Profile:
Ensure effective finance and tax operations and IT systems. Clearly define and communicate responsibilities between tax operations and other teams. Adapt your IT systems to include tax computations for EBITDA calculation and monitor annual tax liability. Your financial planning and budget should also consider the tax liability before publishing financial projections.
Transfer Pricing Model:
Comply with UAE transfer pricing rules, which affect taxable income calculation. Group companies must align their transfer pricing model to their operating model. Ensure you design transfer pricing policies that can be implemented throughout the financial year for easier inclusion in financial statements.
Free Zone Entity Implications:
Businesses in free zones are exempt from tax, but the conditions to qualify as a Free Zone company are complex. Free Zone companies should assess whether they meet all the criteria and analyze the pros and cons of maintaining this status. Review the operational profile in line with mandated conditions to evaluate the advantages of being a Free Zone company.
When preparing for corporate tax filing, read the regulations thoroughly to align your accounting policies with the new laws. Financial reports are a crucial source of information for computing your tax liability. With an accounting software like TallyPrime, you can easily maintain your books for corporate tax by scrutinizing financial reports and assessing exempt and non-exempt income. TallyPrime updates data on depreciation, amortization, and revaluation in real time, helping you compute your tax liability accurately.
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