How does corporate tax impact company strategy and target operating model?

The implementation of corporate tax in the United Arab Emirates (UAE) can have a significant impact on a company's strategy and target operating model. Here are some ways in which corporate tax can influence a company's strategy and operating model:

• Market Entry and Expansion: Corporate tax rate in the UAE can influence a company's decision to enter or expand in the UAE market. Companies need to evaluate the tax implications on Mainland/Free Zone entities, as part of their market entry strategy.
• Legal and Operating Structure: Companies need to review their legal and operating structures and consider restructuring to minimize UAE tax impact. This includes assessing the benefits of free zones and offshore entities.
• Capital Allocation: The introduction of corporate tax in UAE has implications on the gearing of the companies as significant tax benefits can be obtained by choosing an optimum debt-equity ratio.
• Tax Planning and Compliance: Companies operating in the UAE must adapt their financial and tax strategies to comply with tax laws and optimize the tax benefits available as per the tax laws. This includes but not limited to establishing proper accounting practices, keeping accurate financial records, structuring tax efficient transactions, cost management and ensuring tax compliance.
• Cost Management & Operational Efficiency: Corporate taxes can increase the overall cost of doing business in the UAE. Companies need to adjust their cost management strategies to account for the tax liability. To mitigate the impact of corporate tax, companies should focus on operational efficiency to reduce costs and improve profitability. This involves streamlining processes and optimizing resource allocation.
• Dividend Policy: Companies should consider their dividend policy considering corporate tax. The profit after tax influences whether or how much profit is distributed to shareholders.

ESMC's Approach

It's important to note that the specific impact of corporate tax on a company's strategy and operating model will vary depending on the nature of the business, its size, and its industry. Tax laws and regulations can change and sometimes with immediate effect, companies find it difficult to comply with these variations on a timely basis. We at ESMC, ensure that our clients are in compliance at all times, while obtaining the maximum allowable benefits under the UAE CT Laws.

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