For 5 years, businesses have been evolving with the tax regime in the UAE.
Value Added Tax (VAT), Excise Duties, Economic Substance Regulations (ESR), Transfer Pricing and the upcoming Corporation Tax (CT) are some of the major disruptions for businesses requiring a dedicated tax strategy.
If I were to summarize my experience in tax advice, tax litigation and as an in-house tax leader, across Europe, UK, India, USA and UAE, tax strategy would have to be established on the principle of the 4Rs.
Ready to comply
It is a general principle that tax systems are based on the self-assessment of taxpayers.
The responsibility for tax compliance rests with businesses. A taxpayer cannot shift this responsibility to the tax authorities to identify compliance errors and seek penalty waivers based on existing industry practices or because the authorities failed to highlight the errors.
Businesses are required to know the applicable tax laws. Ignorance of the law, or a misunderstanding of it, cannot be an excuse for non-compliance.
Tax compliance is more than just the timely submission of VAT returns or the careful calculation of tax payments and credits. Companies must first understand their compliance obligations.
Failure to comply, even inadvertently, could result in interest, significant penalties, legal costs and bad press.
Be prepared to comply with tax laws. Tax compliance is not just a mandatory requirement, it should be a way of doing business.
React for advice
Tax inefficiencies in transaction structures could significantly increase business costs.
Taxes such as VAT are essentially a transaction tax. How business transactions are structured will axiomatically determine the tax implications.
Corporate tax and transfer pricing are no different. Business models should be planned in advance to optimize taxation on transactions. Free zones and designated zones are special features of UAE tax planning.
It is often too late to structure a business model if the only role of a tax advisor is to prepare and file a VAT return based on historical data of transactions carried out for a long time.
Changes in tax legislation and tax developments should also be actively monitored. A general clarification by the Federal Tax Authority (FCA) given to one industry could have an impact on many other industries. Our tax conversation published on July 3, 2022 highlights such a case.
It is up to companies to react quickly and proactively to seek optimal solutions.
Respond for advice on new business models, deal structures, ever-changing tax laws and tax developments.
Reveal to optimize
Regular work can lead to tax savings opportunities and hidden tax risks that escape the attention of internal tax and finance teams.
Companies should also not shy away from revealing their past/existing tax positions in hopes of passing the 5-year audit statute of limitations without detection. The audit period runs continuously from each tax period/VAT return instead of calendar years.
Periodic due diligence/health check helps identify tax savings opportunities and areas of exposure.
Reveal to optimize tax savings and tax risks.
Revolutionize to maximize
From policy advocacy to employee trainings, from private clarifications to tax litigation, it’s time to make tax awareness part of an organization’s culture.
The tax culture of an organization plays an important role in strengthening its future growth and position.
Taxation is not just accounting compliance. A tax regime impacts a multitude of business functions such as sales quotes and margins, business relationships with suppliers and customers for correct documentation, human resources for employee collections, and more.
Revolutionize the way you see and operate in a tax environment to maximize business profits.
The future of tax compliance
The relationship between a business and its tax advisers is no longer that of service provider and service recipient. The sheer magnitude of tax costs and compliance obligations compels businesses and tax advisors to work in partnership. Both stakeholders must bring substantial knowledge and added value to the table to succeed in this country’s ever-changing tax environment.
(The author is the managing director of AskPankaj Tax Consultants. For comments and questions, you can write to [email protected] The opinions expressed are his own and do not reflect the policy of the journal.)