The terms "tax evasion" and "tax avoidance" are often used interchangeably because of the confusion shrouded in understanding their meaning. The two interpretations are nevertheless distinct, if one is trying to minimize a tax bill, that is engaging in tax avoidance, which is wholly a legal practice. Tax evasion on the other hand involves engaging in tax-related activities and practices that are criminal in nature. Many persons and businesses engage in tax evasion by exaggerating their income, making up expenses, or otherwise providing ambiguous information to avoid paying their fair share of taxes. Contemporarily, every other communication in the business world revolves around corporate tax in UAE, since it is chiefly aimed to deal with akin issues.
Tax Credit Schemes
Individuals' tax liabilities in the UAE can be reduced by tax credits, which are monetary reductions that are not tied to specific costs. In most cases, the use of tax credits to incentivize a desirable tax behaviour, such as the pricing of carbon emissions, which is mandatory for some enterprises is permitted. However, tax evaders also engage in tax evasion by means of tax credit programs, by falsely claiming that they are qualified to get tax credits.
Corporate tax in UAE Effect on Tax Evasion and Economy
Tax evasion has significant effects on local economies like that of the UAE. The ripples extend beyond a single country; it impacts the expansion of economies everywhere. Since globalization tends to connect with countries globally, it has far-reaching implications in areas like trade, business, and employment. With greater connectivity comes greater dependence on one another among the connected nations. Therefore, if the economy of one nation is impacted, it is likely that the economies of the other countries will also be impacted. UAE being one of the largest business hubs is more prone to such implications.
The economy of a country can be negatively impacted by tax evasion since governments utilize tax revenue to fund projects that strengthen and grow their economies. So, the money a government receives from its tax collectors goes right back into the economy. To mention a tax evasion reduces a government's ability to collect the money it is owed. Therefore, the regional economy is profoundly affected. In addition, it has been observed that when a country suffers rising instances of tax evasion and tax avoidance, it has an impact on the country's total productive investment mix, which in turn indicates poor economic growth and also impacts publicly operated businesses. Businesses that engage in tax evasion by continually looking for new ways to avoid paying the government have also been linked to unethical workplace practices.
Read More: Deductible & Non-deductible expenses under Corporate Tax in UAE
Tax Evasion in the UAE
The United Arab Emirates is home to a sizable ex-pat community made up of workers and citizens hailing from all over the globe. The corporate tax law administration has fewer problems for foreign companies doing business within. At present, there are no major instances of either tax evasion or bribery involving tax payments in the country.
Further, the corporate tax regime states that filing taxes and dealing with other tax matters are simplified since there are no corporate or individual income taxes to pay in this jurisdiction, and the total amount of taxes that must be paid by enterprises is likewise, relatively low. Organizations doing business in one of the United Arab Emirates' many free trade zones are exempt from import and export duties. Businesses are highly advised to seek expert corporate tax services to have a better grasp on the impact and applicability of the aforementioned.
Seek Guidance from Corporate Tax Advisors
Since the new corporate tax law is just a few months away from implementation, now is the right time to learn how your business will be regarded under the Corporate Tax and its effects on your business. Corporate Tax advisors in the UAE provide top-notch Corporate Tax Services in Dubai, UAE. So, do not hesitate to contact us today and we shall be happy to assist you.
Abrar Ahmad holds a Master’s as well as an MPhil in Finance and has an extensive experience of 10+ years in managing all aspects of Taxation, VAT Consulting and Accounting. He also carries with him a working knowledge of corporate tax and has helped drive value and growth to the businesses of numerous clients.
