A Business Hub in the Middle East
Located strategically between Asia, Europe, and Africa, the United Arab Emirates (UAE) rank among the most attractive countries for foreign direct investment in the Middle East (ME) and Africa region.
Since oil deposits were discovered in the region 50 years ago, hydrocarbon export revenues have enabled the government to maintain low or virtually nonexistent tax legislation.
No Corporate Tax in Dubai
Internationally, Dubai is perceived as a tax-free territory with an almost total absence of taxation.
It should be noted that there is no federal tax legislation in the UAE, but each emirate has its own tax decrees, which often predate the formation of the UAE.
There is no income tax or withholding tax. The only taxes that exist in Dubai are those related to real estate and the 5% VAT introduced in the Emirates in 2018.
Apart from banks and oil companies, companies based in the Emirates (mainland/free zone/offshore) are not subject to corporate tax. Oil companies pay up to 55% tax on taxable income derived from the United Arab Emirates, while banks pay 20% tax on taxable income.
Double Taxation Treaties with the Emirates
Double taxation treaties (negotiated and signed between the UAE and certain countries) aim to make the Emirates a more attractive place to establish a business. They make it possible to reduce the tax levied in foreign jurisdictions on profits earned abroad by foreign companies operating in the Emirates.
Many countries have already signed these treaties, and others are expected to do so in the coming years.
See
the list here.
As a result, profits, dividends, fees, and royalties are taxable only in the country where they are earned. Although corporate income tax is not levied in the United Arab Emirates, the treaty provisions do not state that this income must be taxed in order to qualify for the benefits. Therefore, dividend income paid by a UAE company to a company from a country that has concluded a double taxation treaty with the UAE may not be taxable for the foreign parent company.
We strongly recommend that you review and study the treaty between your country and the Emirates.
The Case of Free Zones in the Emirates
100% Foreign Ownership
Establishing a company in a free zone is another option available to foreign investors. A free zone is a designated area within the United Arab Emirates where foreign investors can hold up to 100% foreign ownership, along with other benefits such as exemptions from import duties and VAT.
There are more than 46 Free Zones in the Emirates, better known in French as Zones Franches. These free zones were created to attract foreign investment to the United Arab Emirates. Each Free Zone has its own rules. By definition, companies established in Free Zones are generally eligible for a renewable tax exemption of 15 to 50 years. This applies to shareholders and employees. It is important to note that each free zone must be considered separately.
One of the biggest advantages of creating a company in a free zone is that these companies benefit from a number of tax and regulatory advantages, including:
- exemption from corporate tax (also known as a « holiday tax ») for a period of 50 years, a concession that is renewable;
- exemption from all import duties;
- 100% repatriation of capital and profits;
- and 100% foreign ownership.
World-Class Infrastructure
Free zone areas are located near international airports, seaports, and Dubai's main roads. Companies can choose from a variety of customized real estate options to meet their organizational needs.
In addition, Dubai is strategically located between Europe's developed markets and the emerging markets of Africa, South and Central Asia, and the Middle East.
Introduction of VAT in 2018
VAT (at rates of 0% or 5%) has been applied in the United Arab Emirates since January 1, 2018.
VAT in the Emirates works like VAT in France, Belgium, etc.: it is paid by the final consumer (it is neutral for companies, which must collect it and remit the balance between VAT collected on their sales and deductible VAT on their purchases).
The companies that must register depend on the amount of their turnover and their activities.
Four cases may arise:
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MANDATORY: Your turnover for the past 12 months or the next 30 days exceeds AED 375 000: VAT registration is mandatory. You will then be able to recover VAT on your purchases;
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VOLUNTARY: Your turnover for the past 12 months or the next 30 days exceeds AED 187 500 and is less than AED 375 000: VAT registration is optional. If you choose this option, you will then be able to recover VAT on your purchases. Otherwise, you will not be able to recover VAT on your purchases;
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EXCEPTION: this applies only to companies whose activities are outside the UAE and outside the GCC (Oman, Saudi Arabia, etc.) and that do not intend to have any. The company will not have a VAT number and therefore will not be able to recover VAT on its purchases. In this case, no quarterly return is required;
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EXEMPTION: VAT exemption applies only to certain business sectors, such as healthcare, education, oil and gas, real estate, and transportation. Registration is required if you exceed the mandatory turnover threshold (check the box on the registration form if you are subject to exempt VAT).
Recently, speculation has emerged regarding the
potential future introduction of corporate income tax in the United Arab Emirates. However, the introduction of this tax remains uncertain.
If you are considering setting up your Free Zone, now is the ideal time.
Our firm will support you throughout your project from A to Z.
Contact a member of our team
HERE.
