Expert Strategies for Withholding Tax UAE Business Owners in 2024

Strategies for Withholding Tax UAE Business Owners
April 17, 2024 | | Corporate Tax, Taxes |

Strategies for Withholding Tax UAE Business Owners

The United Arab Emirates (UAE) has turned into an appealing jurisdiction for holding companies seeking to optimize their tax planning strategies in recent years. As an entrepreneur or business person, Understanding UAE tax laws is essential for maintaining compliance with the evolving tax regulations of the country.

The United Arab Emirates (UAE) Federal Tax Authority (FTA) took a significant step by issuing an outline of the particular withholding tax requirements under the framework of corporate tax in the UAE in December 2022.  The introduction of the withholding tax in the United Arab Emirates has raised confusion among the taxpayer.

If you need clarification about the withholding tax and want to save more on these taxes, invest some time in this article. The article will highlight every essential information about the withholding tax. In addition, we will highlight some Withholding tax reduction methods.

Strategies for Withholding Tax UAE Business Owners

Withholding taxes – Overview.

Withholding tax is an amount of money that an employer or business entity pays as income tax on behalf of its employers or contractors. This amount is usually deducted from the source of income. Hence, this is called withheld taxes in the taxation world.

The amount withheld from an employee’s paycheck serves as a credit toward their yearly income tax payment.  Apart from an employee, the amount withheld is another credit the contractor must pay during the year. Suppose an excess amount of money is withheld from your income over the year. In that case, you will be eligible for a tax refund. Conversely, if an insufficient fund is withheld, you can owe the tax authority upon filing the tax return.

Tax rules or regulations and rates differ from country to country. In addition, collecting methods for taxes are also different in each nation. Generally, taxes are withheld at a rate ranging from 15 percent to 25 percent globally. Most tax system applies a withholding tax on royalties, interest payments, and dividends.  This practice is the most common method worldwide because it ensures that the government gets its fair revenue on time.


Implications of  Withholding Tax Rules and Regulations to UAE Businesses

 The Ministry of Finance (MoF), working with the conjunction of Federal Tax Authority (FTA), announced Federal-Decree Law No. 47. The law outlines the current guideline governing corporate tax (CT) and withholding tax in the United Arab Emirates. According to Federal-Decree Law No. 47, the tax rate of withholding tax is currently set at 0 per cent.

Indeed, you have read it right! You should not pay any penny as a withholding tax in the United Arab Emirates.   The change made to this decree-law has been came into effect on 1st June 2023. In addition, this change applies to all subsequent financial years.

Benefits of Withholding Tax

 Indeed, the withholding tax sounds awful for numerous organizations throughout the world. But, there are countless benefits of withholding taxes for businesses in the United Arab Emirates. The following is the list of the top benefits of withholding taxes in this country:

  • The withholding tax can be used as an employee incentive by enabling companies to cut withholding taxes from employee salaries and reward them with extra benefits like bonuses or additional vacation time.
  • These taxes ensure compliance with local laws and regulations in the United Arab Emirates. Thus, this tax also prevents companies from fines or penalties.
  • The withholding taxes prevent the risk of double taxation. In addition, this tax lets the government monitor and collect taxes from non-resident people who are facing difficulties paying what they own.
  • The withholding tax ensures that foreigners conducting their organizational operations within the United Arab Emirates are still accountable for their earnings and associated taxes.
  • The withholding tax additionally combats tax evasion while generating some extra government revenue.

Experts strategies to save tax in the UAE

 Indeed, there is a 0 percent rate for withholding tax in the United Arab Emirates. However, you can save more on with Tax optimization techniques in the UAELet us take a look at the top strategies that can help you save your withholding and other taxes in this country:

Strategies for Withholding Tax UAE Business Owners

1. Pick the correct business structure.

An appropriate business structure is critical for UAE tax planning strategies. The United Arab Emirates gives businesses in the country a variety of business structures. Remember, each business structure has its own tax implications. For example, the UAE Free Zones are exempt from Corporate Tax (CT), whereas companies operating in the UAE mainland are subject to a 9 percent rate of corporate tax.

Therefore, you should carefully analyze the tax benefits and restrictions before choosing a business structure for your company. In short, choosing a perfect business structure can help you to save more money on your tax.

2. Leverage DTAA

The United Arab Emirates has signed a Double Taxation Avoidance Agreement (DTAA) with 130 plus countries. The business houses and residents in the UAE are eligible to avail the advantages of DTAA.

The DTAA is to promote cross-border trade and investment flows. The agreement protects taxpayers from double taxation and attracts more entrepreneurs to set up businesses in the United Arab Emirates.

By leveraging the Double Taxation Avoidance Agreement (DTAA), companies can benefit from reduced tax rates and exemption from certain types of income.  High-net-worth people and companies in the UAE can apply for the tax residency certificate from the Ministry of Finance to claim the benefits of DTAA.

3. Transfer pricing and thin capitalization

The UAE’s tax authorities are emphasizing transfer pricing and thin capitalization. Transfer pricing refers to transactions between related parties, and thin capitalization refers to excessive debt financing by a subsidiary. Businesses must keep detailed records of related-party transactions, prepare transfer pricing documentation, and use arm’s length pricing for all transactions to comply with the UAE’s tax rules. It will help you to save your taxes efficiently.

How can Flyingcolour Tax Consultant help you?

The UAE has introduced the withholding tax along with the Corporate Tax. However, the tax rate for withholding tax is 0 percent. Several UAE tax planning strategies can help you to save on withholding and other taxes. Flyingcolour Tax Consultant can also help you save more on taxes in the UAE. In addition, our experts can provide Expert advice for UAE business owners for effective tax planning.

To learn more about Strategies for Withholding Tax UAE Business Owners, book a free consultation with one of the Flyingcolour team advisors, simply call +971 50 5585305 or send WhatsApp messages to +971 4 4542366. you can also drop an email to info (at) flyingcolour (dot) com.

This article was published on 17-04-2024. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent updates or changes.

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