The UAE has seen big changes in its tax rules over the past few years. These new tax laws have not only changed the way businesses work but also how they are valued. If you plan to buy, sell, or invest in a business, knowing how tax laws can affect its value is important. At JAKS, we provide trusted business valuation services across the UAE. We help you know the real worth of your business so you can make informed and confident decisions to grow.
UAE – From Tax-Free to Tax-Aware
For many years, the UAE was known as a tax-free place for businesses, making it popular with companies and investors. But now, the rules have changed. The UAE introduced Value Added Tax (VAT) in 2018 and Corporate Tax in 2023. These tax changes now play a big role in business valuation.
What Does Business Valuation Mean?
Business valuation means finding out how much a business is worth. To do this, people look at the business’s profits, assets (what it owns), debts (what it owes), and how much it might grow. Now, taxes have also become a big part of this process.
How Tax Laws Affect Business Value
Here are some simple ways tax laws can change how a business is valued in the UAE:
1. Lower Profits Because of Tax
When a business has to pay taxes, it keeps less of its profit. For example, under the new corporate tax rule, a company earning more than AED 375,000 annually must pay a 9% tax. This means the company will show lower profits, which can lead to a lower business value—especially if you use methods based on earnings.
2. Clear and Honest Financial Records
New tax rules mean businesses must keep proper records of their income and expenses. This helps make financial reports more honest and clear. While this may not directly increase a business’s value, it does help gain trust from buyers and investors.
3. Changes in Future Cash Flow
To value a business, people often look at the money it is expected to earn in the future. But now, businesses must pay taxes regularly, reducing their future cash flow. When cash flow goes down, the value of the business can also go down.
4. Extra Costs for Following the Rules
Following tax rules isn’t free. Businesses need accountants, tax advisors, and software to handle tax filings. These extra costs can lower profits and affect the company’s value.
5. Deferred Tax – A New Thing to Consider
With corporate tax, businesses may now have “deferred tax” on their balance sheet. This means tax that is not paid immediately but will be paid or saved in the future. This can change how the business’s assets and liabilities look and must be included during valuation.
6. Different Effects on Different Sectors
Some industries may feel the effect of taxes more than others. For example, real estate businesses may need to charge VAT on selling commercial property. Small service firms with low profits might feel more pressure from corporate tax. So, when valuing a business, it’s essential to consider its industry type.
What Businesses Should Do
To prepare for these changes, businesses in the UAE should:
- Learn about the new tax rules
- Get help from tax experts and valuers
- Keep their financial records up to date
- Use good accounting systems
- Plan for tax payments
Being ready can help businesses avoid problems during valuation and talking to buyers or investors. Tax laws like VAT and corporate tax have significantly changed the UAE’s business world. These rules bring more structure and help build trust. For businesses, it’s a sign of growth and becoming part of a more mature market. If you understand how these tax rules affect your business’s value, you’ll be in a better place to make smart decisions—buying, selling, or investing.
JAKS is a trusted consulting firm in Dubai. We help with business valuation services. So you can understand what your business is worth. We also handle bookkeeping, VAT filing, payroll, and monthly financial reports. This makes it easy for you to handle your money without stress. At JAKS, we keep things simple, clear, and reliable. Need help? Call us at +971 503372712 or email [email protected] — we’re happy to help!
