It is not a secret that the reduction of the government tax load, whether it is optimization or explicit evasion, always causes a negative reaction of controlling and fiscal governmental bodies. It should be noted that such pressure from the state tends to increase from year to year.
Mostly, a reaction of the state authorities depends on the chosen method of reduction of the tax burden. Unfortunately, many attempts of such optimization can be perceived by the state negatively and cause various sanctions by the fiscal authorities. It can be penalty taxes and penalty interests on the unpaid portion of the tax. The international norms of law imply that the subjects of economic relations have a perfect right to protect their valuable interests by all means, which are not inconsistent with the current law on the territory of the country. Thus, if the method of payment of the tax implies the reduction of the tax rate and does not violate the rules of law, it has a right to existence.
Optimization as a method of reducing the tax payments
Tax optimization provides the reduction of tax rates and prevention of the imposition of the applicable penalties. The main purpose of the tax optimization is not a reduction of the tax rate, but the opportunity to gain more profit after paying the necessary taxes.
It is important to understand that the reduction of one tax may cause the growth of other types of taxation, and in some cases it can result in penalties from fiscal governmental bodies. In other words, the applied fines can fully cover all the benefits of tax optimization, what, in that case, shows the low efficiency of the chosen method.
Method of changing the economic relations
The tax legislation of the United Arab Emirates provides potential taxpayers with the wide range of tools for tax optimization.
The tax optimization can be achieved in different ways for different subjects of economic relations. The current legislation does not limit the economic entities in the selection of counteragents and terms of transaction. The choice of the methodology of tax planning depends solely on the economic situation.
Such an approach provides the entities of the economic relations with the possibility of independent choice of the legal form of the transactions with counteragents. By entering into the transaction, the taxpayer fully considers the possible tax implications.
As a result, there is the substitution of some economic relations with other, which assume the minimal taxation in accordance with the state benefits. It should be noted that such handlings and substitution of relations are not reflected on the economic component of the transaction.
In such situation, only the replacement of subjective relations occurs, in particular the set of rights and obligations of the parties. The legislation implies that such transactions should not contain any obvious signs of virtual transaction or simulated contract. Breaking of this rule may cause the invalidation of the transaction and entail the subjects the negative consequences for entities.
Method of separation of the economic relations
This methodology provides the separation of the complex economic relations into a few simple operations. And this separation is valid even if the complex relations can function independently. As an example of the separation can serve such a situation, when the part of the activity of one enterprise is transmitted to another legal entity which has tax benefits.
In practice, a part of the production or separate production lines are transferred out of the country in foreign jurisdiction, which implies an effective tax optimization. Or that part of the business, which provides, for example, an international logistics, is transferred out of the country.
Method of reducing the taxable objects
Such method provides the reduction of the number of the available taxable objects, and also the reduction of the taxable operations. The main condition of the reduction of the taxable object is the protection of the economic activity of the enterprise from the negative influences.
Professional approach as the keystone to success
The practical use of different methodologies for tax optimization and getting the desired effect is impossible without qualified and professional approach. Any mistake, even a seemingly insignificant one, in the course of tax accounting can lead to the worst possible consequences for business.
It is recommended to use the existing tools of tax optimization as the whole, as the limitation in this issue greatly decreases the possibilities of optimization. The international experts in the field of tax planning admit that only a complex and comprehensive application of the optimization methods can provide the maximal effect and considerably reduce the risk of the state claims to the business.
It is not recommended to use already existing schemes of tax optimization. While the main purpose of optimization is to identify the drawbacks of tax legislation and their usage, one shouldn’t lose sight of the current law of his country. The usage of foreign templates will not give the desired effect. Especially because while choosing the method of optimization, it is important to take into account the economic conditions of each specific situation.
It should be noted that the tax optimization plays an important role not only for country, but also for ordinary taxpayers. When for the state fiscal authorities - it is the loss and shortfall in the budget, for the taxpayer's the purposes will be opposite. The obligation to pay the fixed taxes is compulsory for citizens; its violation entails negative consequences. The taxpayer has no right to evade taxes, but at the same time, he has the possibility of tax optimization being in line with applicable regulations.
The practical application of the above-listed methods of the tax optimization enables companies and enterprises to minimize the tax burden under the current legislation. A significant place in optimization is given to the determination of the optimal economic relations, taking into account the possible tax consequences.
Our extensive experience confirms that there is an effective and efficient solution of tax optimization for almost any business via the companies in the UAE. Contact our staff and enlist the support of our professionals.