THE IMPORTANCE OF FINANCIAL STRATEGY IN BUSINESS SUCCESS
The financial strategy is incredibly critical for the success of the company due to its linkage with achievement of overall goal of business wealth maximization. In addition, this, financial strategy ‘s positioning becomes back bone due to following reasons:
A sound and well-crafted financial strategy instills confidence among stakeholders, including investors, creditors, employees, and customers. Business owners bear this confidence in mind when planning and executing growth strategies. It serves as a source of energy for decision-makers.
A well-devised strategy allows business managers to allocate resources to optimize their potential. An efficient financial strategy enables the allocation of resources to projects with optimal return on investment. Without such a strategy, managers may hesitate to pursue potential projects. These projects may become burdensome if the financial strategy does not envisage optimal resource allocation in terms of timing and quantity.
The financial strategy is closely linked with overall strategic planning and acts as the backbone of the business strategy. It aligns financial goals with broader business objectives.
Financial strategy is essential for long-term business planning. It involves predicting future forecasts of the company regarding revenues, profitability, tax implications, estimated capital expenditures, proposed investments, and the certainty with which the company expects to pursue its prospects.
FINANCIAL STRATEGY AS TOOL FOR SURVIVAL IN CRISES:
In addition to the reasons mentioned above, financial strategy becomes a critical tool in circumstances of emergency, crises, and liquidity issues. An efficient financial strategy enables a company to effectively manage the toughest phases of its life cycle.
Thus, every avenue involving spending money or receiving money is a matter of concern for the financial strategy, such as spending money on day-to-day operations, making short-term investments, long-term investments, purchasing capital assets, or allocating resources toward the payment of business taxes. All these financial avenues must be planned efficiently.
ROLE OF TAX MANAGEMENT CONSULTANT AND ITS ROLE IN ENHANCING THE FINANCIAL EFFICIENCY
In the past, tax management consultants in the UAE were primarily engaged by organizations for tax filing purposes and often did not have access to actual business results. However, in recent years, with the advent of globalization and technological advancements, businesses have expanded beyond national borders. This expansion has led to increased government attention to developing and improving tax laws to address the global outreach of businesses, resulting in more taxes being imposed. Governments now utilize technology to gather more information about business transactions.
Consequently, strategists have recognized the importance of considering taxation in financial planning. Ignoring or inadequately addressing taxation can adversely affect a business’s financial strategy, leading to penalties, government sanctions, and reputational damage.
Tax management consultants, who specialize in tax planning and risk management, provide comprehensive and strategic advice on tax-related matters. They collaborate with individuals and organizations to minimize potential tax liabilities and ensure compliance with tax laws. By integrating business financial strategy and risk management with tax planning, tax management consultants help minimize a business’s exposure and tax burden, ultimately enhancing financial efficiency.
ROLE OF TAX MANAGEMENT CONSULTANT
A tax management consultant is essential for conducting a thorough review of an organization’s current tax practices and liabilities. This review aims to identify areas for improvement, ensure compliance, and optimize tax efficiency. Here’s a detailed look at their role in this process:
ASSESSMENT OF CURRENT PRACTICES
- Initial Analysis: Conduct an in-depth analysis of the organization’s existing tax policies, procedures, and strategies.
- Data Collection: Gather relevant financial documents, tax returns, and records to understand the current tax position.
- Benchmarking: Compare current practices against industry standards and best practices to identify gaps and areas for improvement.
IDENTIFICATION OF COMPLIANCE ISSUES
- Regulatory Review: Ensure that all tax practices comply with local, national, and international tax laws and regulations.
- Risk Assessment: Identify any areas where the organization is at risk of non-compliance and potential penalties.
- Audit Readiness: Prepare the organization for potential tax audits by reviewing documentation and procedures.
ANALYSIS OF TAX LIABILITIES
- Liability Calculation: Review and verify the accuracy of the organization’s tax liabilities to ensure correct calculations.
- Expense Review: Evaluate deductible expenses, credits, and other tax benefits to ensure they are fully utilized.
- Timing Strategies: Assess the timing of income recognition and expense payments to optimize tax liabilities.
IDENTIFYING THE AREAS OF POTENTIAL TAX SAVINGS
A tax management consultant plays a pivotal role in identifying areas for potential tax savings and optimization within an organization. By leveraging their expertise, these tax management consultants help businesses minimize tax liabilities, enhance cash flow, and improve overall financial performance. Areas of potential tax savings may include:
- Identifying Tax-Deductible Expenditures and Improving the Allowable Expenditures Tax Base: Businesses may overlook certain expenditures and deem them inadmissible for tax purposes. Tax management consultants help businesses claim such expenditures by allowing them to make slight changes in transaction sequences, enabling the organization to claim expenditures.
- Tax management consultants assist businesses in avoiding overpaying taxes, especially in cases of withholding taxes. Buyers often withhold income tax, assuming it applies to their payments. Tax management consultants help optimize tax payments and educate businesses about potential tax exemptions available while conducting business in that area, thus ensuring tax savings.
ANALYZING THE IMPACT OF TAX LAWS AND REGULATIONS ON FINANCIAL OPERATIONS
The tax management consultant, being an expert in tax laws, performs the following tasks:
- Analyzing the current model of the business, including its revenue streams, expense base, segments, branches, and jurisdictions.
- Documenting the business model and conceptualizing it within the framework of tax laws and regulations and preparing an overall tax impact analysis report.
- Comparing the impact analysis with the actual tax burden borne by the client and identifying any excess tax burden that may impose an additional strain on the organization’s overall financial outlook.
This impact analysis is conducted at both the overall business level and in specific scenarios.
TAX PLANNING AND STRATEGY DEVELOPMENT
There are no universal tax strategies that the tax consultant will use for every company. The tax consultant builds company-specific tax strategies that attempt to encompass all tax risks and exposures while being consistent with the overall business strategy of the company. This type of work requires a deep understanding of not only tax laws and regulations, but also industry practices, types of transactions, business model, and future growth plan of the business. For example, using UAE Tax Planning services can provide an individualised tax strategy that can include the following aspects:
- Identify the business objectives and goals.
- Assess current tax position.
- Recognise areas for tax optimisation opportunities.
- Tax strategy and planning.
IMPLEMENTING TAX-EFFICIENT STRUCTURING FOR TRANSACTIONS AND INVESTMENTS-OPTIMIZATION OF BUSINESS STRUCTURE
A tax management consultant is an invaluable resource in the process of constructing a tax-effective framework for transactions and investments. The goal is to help the organisation minimise its tax obligations and improve its financial health. The prime responsibilities are:
- INITIAL EVALUATION: This is reviewing the organisation’s financial position, transaction history, and investment portfolio.
- OBJECTIVE ALIGNMENT: Knowing and comprehending the organisation’s goals, strategic initiatives for growth, risk tolerance, and investment timelines.
- TRANSACTION STRUCTURE: Advising on what the most tax-effective entity structure is for the transaction (e.g. corporations, partnerships, limited liability companies (LLCs), trusts).
- STRUCTURING INVESTMENTS: Typically, structuring the proposed investments with the objective of minimising tax liabilities on those investments. Building investment routing plans, managing capital gains, and investment vehicles are also important purposes for structuring investments.
OPTIMIZATION OF BUSINESS STRUCTURE
Tax management consultants may also advise on the optimisation of business structures. This may encompass:
EVALUATING THE MOST TAX-EFFICIENT BUSINESS ENTITY STRUCTURE:
Regarding the tax regime, the consultant recommends the least impactful tax regime for a business while considering the goals and objectives of the organisation. The consultant can recommend whether to incorporate within a free zone or on the mainland, a sole proprietor, limited liability or special purpose vehicle. If warranted, a simple partnership might not suffice, and a joint venture may also be considered. Similarly, the consultant can advise the organization on whether to operate in the Abu Dhabi Global Market (ADGM) benefiting from the jurisdiction of international courts for enforceability, or where the use of the mainland is suggested to take advantage of the domestic justice system if any breach of contract should happen, important decisions are made alongside the strategic thinkers within the organization.
ADVISING ON MERGERS, ACQUISITIONS, AND RESTRUCTURING FOR TAX OPTIMIZATION:
- DUE DILIGENCE: Tax due diligence exercise carried out to identify the potential tax liabilities and opportunities for transactions in merger and acquisition (M&A) deals.
- TAX-EFFICIENT INTEGRATION: Tax strategies to manage the integration of acquired businesses in a tax-efficient manner, use of net operating losses (NOLs) and assets.
EMPLOYEE BENEFITS AND COMPENSATION PLANNING
A tax management consultant may also assist in structuring payroll to minimise tax implications. For instance:
- DESIGNING A TAX EFFECTIVE EMPLOYEE BENEFIT PROGRAM: Designing tax-effective pay plans, including salary deferrals, stock options and fringe benefits. Consulting on the payroll structure of non-resident employees, for instance, to minimise offshore tax consequences as well.
- STRUCTURING EXECUTIVE COMPENSATION TO MINIMIZE TAX EXPOSURE: Tax management consultants help an organisation work out efficient tax plans for executive pay, for example, consulting on the benefits of looking at the tax implications of receiving directors’ fees or similar remuneration as salary. Directors’ fees may entail VAT and income tax, while salary may entail little or no tax in some jurisdictions.
- PROVIDING ADVICE ON RETIREMENT PLANS OR EMPLOYEE STOCK OPTIONS: A tax management consultant, as subject matter experts aware of the tax implications of all types of retirement plans, may advise on whether it be better for the firm to offer gratuity or pensions, or if stock options could be better taken than plans for annual income. They can assess which plan may save more taxes in conjunction with other benefits, and whether they should pay into state plans for retirement benefits or if group insurance plans would suit them better.
TAKEAWAY
Whether individuals or businesses, tax consultants have considerable skills and experience in managing taxes. Utilising tax consultants’ expertise as a business can help increase productivity, minimise tax liability, and improve your financial position to further your organisational objectives. The main avenues tax consultants can assist with include tax reviews and analysis, tax impact analysis, planning and utilizing tax incentives and credits to minimize tax liabilities, developing favourable, organised tax structures, compliance and risk assessment, expense and cost analysis, employee benefits and compensation planning in a tax efficient manner, and continuous observation and review for improvement on the outcomes from each strategy.
Engaging in ongoing management and pro-active work with tax experts, privileging their engagement at pre- and post-umbrella levels in a transaction to support the position that the business can acquire the benefit of their services. In terms of the individual level, effective tax management also ensures that individuals can minimise their annual tax exposure related to wealth tax, income tax, zakat, and capital gains tax as they each come due. In addition to taxation risk, tax management consultants widen an organisation’s protection by minimising exposure to pre-determined actions of the state in a punitive response to vexatious tax donations, while improving compliance and overall levels of institutional adherence.
High-net-worth individuals often seek the expertise of tax management consultants to manage their various assets within multiple tax jurisdictions. This service is an important benefit to all taxpayers for confidence and financial optimisation.
Are you ready for your tax strategy to be optimised and to provide you with the maximum financial benefit? Connect with Creation Business Consultants to discuss your unique, tailored tax service.
Email: [email protected] | UAE: +971 4 878 6240 | Saudi Arabia: +966 56 865 2329
