Dubai tax-free company: everything you need to know about business setup in UAE
For well-versed businessmen, the fact that the United Arab Emirates is one of the largest and most prolific economies comes as no secret. With a great level of diversification, this country’s participation in the global trade and commerce structure is remarkable, topped by its membership in the World Trade Organization as one of its most important partners.
Of course, any well-versed businessman looking to expand their range will also look at this country as a potential location to invest. Therefore, if your plans include a quick immersion into the UAE economy, you should consider several aspects, even if you are already on the right track.
DUBAI’S TAX INCENTIVES ON NEW CORPORATIONS
The national government of the United Arab Emirates is an expert in providing capital holders with great tax opportunities when they trust their country for their asset allocation. Personal income tax, withholding tax, and corporate tax are all nonexistent, meaning that you will keep most, if not all of your profits made in the country.
This translates into you being able to reinvest what you already saved. While growing your business and avoiding tax infernos, you’ll have the opportunity to enjoy one of the greatest cities on Earth.
The implications of a tax regime like the one present in the UAE enable businessmen to carry out business under great financial conditions, as the system is made to simplify the economic growth of both individuals and the nation.
SUPPORT FROM THE GOVERNMENT
Any country that is considered to be one of the greatest ones for starting a company must have the government by its side. In that sense, the UAE is known for providing businesses with a more than attractive pathway towards their growth. This is also and especially true for foreign investors that pick Dubai as their headquarters, partly because the city is as peaceful as an XXI metropolis can be.
The head of the national government, His Highness Mohammed bin Rashid Al Maktoum, has been leading a crusade to fortify the country’s economic system, providing investors with an appropriate environment that calls for capital allocation as never before.
LARGE LABOR MARKET: READY TO SUPPLY NEW BUSINESSES
In accordance with the modernization intended through governmental policies, the UAE labor market has found an unseen growth. Not only a diversified working population is ready to provide any corporation with what they need, but also a professional one.
This last assessment is particularly true due to the level of migration Dubai has encountered in recent years, a city in which many well-trained and educated foreigners from all over the world have chosen as the place to fulfill their professional goals.
Of course, as it happens with most high-income countries, a well-prepared working force will cost you. That’s why we highly recommend doing proper background research on the particular area of business you intend to start in Dubai, as there are some sectors that are more favorable in terms of cost.
FRIENDLY EXCHANGE RATES
When comparing the currency exchange rates of most Arab countries, the common thing is for them to be highly unstable. However, such is not the case in the UAE.
Since 1997, the USD currency rates in the country have remained virtually the same, and have also kept their strength in relation to other currencies like the Yen, Euro, or British Pound. For almost 25 years, such stability has become a model for most Arab countries.
This has provided leverage for the country in terms of being a major factor in the global trade business, as well as making its local banking industry a more than solid one in front of other nations with more tradition in the sector.
A BETTER FUTURE LIES AHEAD FOR THE UAE
Population-wise, the UAE is reaching an acceleration that is often highlighted as one of the most promising in the world, and over 80% are expatriates. Either by independent analysts or developmental organizations from all over the world, the projections for this country are everything but disappointing.
As it has become a popular destination for ex-pats, the nation is filled with highly-trained professionals with several backgrounds and cultures, ultimately providing it with a degree of diversity that is known to potentiate the ability to grow, innovate and improve.
Dubai is also the home of some of the world’s largest expositions, in which the Dubai 2021 Expo can be highlighted. There, the city was turned upside down in a party of entrepreneurship and innovation, promoting new corporations and fueling the economy at an admirable speed.
On top of it, most foreigners can enjoy European-ish living standards, as Dubai is known for offering its citizens a more than amazing life quality. Also, the fact that an average investment often is attached to a great rate of return (between 5% and 12% annually).
That is without mentioning the fact that the country has presented great advances educationally, offering citizens some of the most prestigious institutions of its region. And if one understands how important education is for an accurate projection, the UAE has all the tickets to conquer a more than bright future.
IS DUBAI REALLY TAX-FREE?
Dubai, one of the seven emirates that make up the United Arab Emirates (UAE), is well known for its tax-free life. In the Arab world, it is considered haram or forbidden to take unearned income, which is considered a tax. There is also no property tax in Dubai.
INDIVIDUAL TAXES
Individuals living in Dubai do not pay income, property, or capital gains taxes. However, this does not mean that there are no taxes at all; import duties are levied, which are taxes on goods imported from outside the country.
Recently, according to the recommendations of the International Monetary Fund (IMF), the UAE has inserted a 5% value-added tax (VAT) on consumer goods.
CORPORATE TAXES
There is no corporate income tax for most companies located in the UAE; however, Dubai taxes the income of foreign banks and oil companies. The region also contains a number of economic free zones, which offer economic incentives to encourage investment and business development.
REAL ESTATE TAXES
Real estate is another source of revenue for the Dubai government. There are two types of real estate taxes paid in Dubai: those levied on transactions and those applicable to rentals.
BUYING AND SELLING REAL ESTATE
While homes and land are not subject to VAT, there are real estate transaction taxes. Thus, at the time of a sale and purchase, both the buyer and the seller must each pay 2% of the value of the transaction as taxes.
At the same time, if we finance our purchase with a mortgage, we will have to pay 0.25% of the mortgage loan amount as taxes.
It should be noted that if we receive a property as a donation or inheritance, we will have to pay a tax of 4% of the value of the property.
TYPES OF COMPANIES THAT CAN BE SET UP IN DUBAI
Before registering a company in Dubai, the appropriate type of business entity must be selected. there are four main types, each with its own subdivisions: the civil partnership, the joint venture, the private limited company, the public limited company, and the limited liability company.
WHAT ARE THE REQUIREMENTS TO OPEN A LIMITED LIABILITY COMPANY IN DUBAI?
The Limited Liability Company is the most commonly used type of company in Dubai and its Free Zone as it is very versatile and its shareholding structure depends on where it is located. The requirements are as follows:
- – The company must have at least 2 shareholders if it is registered in Dubai mainland, and at least 1 if it is established in a free zone in Dubai.
- – In terms of share capital. a company based in Dubai does not need a minimum amount. However, each free zone establishes the amount of money required.
- – The Memorandum and Articles of Association are the documents that must be prepared for the registration of a limited liability company.
- – The company will need a registered address in Dubai or in the free zone in which it will operate.
- – The company will also need to have a bank account established with a local bank.
- – The business license must be obtained in accordance with the activities to be carried out.
- – Regardless of the business form chosen, a local agent must be appointed to register the company with the Dubai Economic Development Department.
SOLE PROPRIETORSHIP AND PARTNERSHIP ESTABLISHMENT IN DUBAI
A partnership can be a great solution for foreign entrepreneurs with specific professions who wish to relocate to Dubai. The creation of a partnership, whether general or limited, is based on a partnership agreement. There are no share capital requirements to establish sole or partnership companies in Dubai. However, these types of companies do not offer full protection to the owners and are rarely used.
In the event that foreign companies are interested in establishing a presence in Dubai, they can choose between a branch and a subsidiary. While it is necessary for the branch to complete the same activities as the parent company. the subsidiary offers greater flexibility in terms of the activities to be performed.
Both subsidiaries and branches can be established either on the mainland of Dubai or in the free zones. The subsidiary will take the form of a limited liability company most of the time.
DUBAI FREE ZONES COMPANIES: WHAT CAN A FOREIGNER DO?
The so-called Dubai Free Zones, also known as Free Trade Zones or Free Economic Zones, are the ideal areas in which a foreigner can maximize their profits when doing business in the country. In these zones, everything from taxes to employment legislation is relaxed in favor of economic growth. These areas are explicitly made different than the rest of the country.
On top of that, these areas are thought to allow the handling, production, and modification of products within certain standards that favor both business owners and customers. The only way in which these goods are to be applied with custom duties is by moving them from the designated areas to the country’s mainland.
There are about 50 so-called Free Zones in the United Arab Emirates, each one with a particular set of legislations that align with particular business sectors. In other words, according to the Free Zone, a given business type is more or less favored.
To give an example, the Dubai Internet City gives all businesses related to IT, Software, and digital technologies a special treatment, while the Dubai Design District will do the same with fashion-related initiatives. Of course, Dubai is the UAE city with the most number of Free Zones, but other Emirates like Abu Dhabi and Ras Al Khaimah also offer incentives to enterprises.
The Jebel Ali Free Zone, established in 1985, was the first of these economic zones. Since then, the government has invested billions of dollars in infrastructure and programs to attract foreign investors to the region.
ADVANTAGES OF DUBAI FREE ZONES COMPANIES
Creating your company in a free zone in Dubai in the United Arab Emirates presents certain fiscal and social advantages.
Let’s start with the tax advantages. The companies installed in a free zone in Dubai do not have to pay corporate tax and VAT. On a personal note, there are no social charges, no income tax, and no wealth tax.
Among the advantages of starting a company in a UAE Free Zone, there is the fact that foreigners will be allowed to own 100% of the company, as you won’t have to present a UAE business partner in order to register it.
When starting a trading company in a Free Zone, you have to bear in mind that you can only import and re-export to other countries. This is due to legislation that prohibits goods to enter the country’s mainland, with the exception that said goods are cleared by an already existing Limited Liability Company or an equivalent logistics enterprise.
If your desire is to sell goods within the country, you will be allowed to do so through an alliance with local distributors. Free Zone companies, on the other hand, won’t be able to sell said goods alone, as the legislation only permits trade on a wholesale basis. However, there are exceptions to this rule, as the Dubai Design District.
A Free Zone company can either start as a New Company, a subsidiary of a formerly-created one, or as a branch. On top of that, investor or employment visas to be granted are directly attached to the facility rented by the free zone company. The current quota grants 1 visa for every 10 square meters.
However, you are also allowed to start a Free Zone company without the need to rent a physical office. You could perfectly manage your business under smart desk methodologies in those activities in which a physical place isn’t intuitively needed (retail businesses, for example).
Also, setting up a Free Zone company will give you the possibility to repatriate the totality of your capital, which translates into remitting all of your profits to your home country. And if holding a license for industry-related activities, duty-free GCC agreements will not apply only when supplying other GCC countries and if the product is made within a designated area.
-What about the social advantages? When a foreigner decides to launch his company in a Dubai free-zone, he can obtain directly for himself and his employees a residence and work visa, valid for 3 years and renewable for life. His family can also benefit from it.
Tax advantages, social advantages, facilitated administrative procedures: free zones in Dubai have many points that attract foreign investors. A success for the United Arab Emirates which represents, today, one of the most attractive destinations to launch your company in a free zone.
PICKING THE BEST FREE ZONES FOR YOUR NEW UAE BUSINESS
When you are about to pick amongst 50 different but perfectly attractive areas to start your business, saying that is a tough choice that requires proper guidance would be an understatement. It’s mandatory to do extensive research on each one of the Free Zones out there in order to choose what’s best for your objectives, always keeping in mind that each one of them will have specific business activities in terms of incentives, locations, alternatives, and, more importantly, capital requirements.
But let’s chill a bit. All of this information might cause you strong headaches, especially understanding that is your money that is at stake here. We will take a brief look at all the fundamentals you have to take into account, step by step:
The first thing you have to consider is that each Free Zone has its own particular business activity as a core. Therefore, if you already know which kind of business you want to start, you should look for the area that benefits that particular line of business.
Secondly, it’s important to know that the location of the facility will only be allowed to be in the same Free Zone in which the company is registered, meaning that you should look for an area that suits your business strategy in terms of both management and client outreach.
There is a budgetary aspect of the process that should bear in mind. There are Free Zones that allow its facilities to “go virtual”, meaning that a physical office is not mandatory. However, there are other areas in which you will need to rent a minimum amount of footage in order to register the company.
Another thing to consider is the number of UAE Residence Visas required for the company to function. There is a quota that is mentioned above, about 1 visa per 10 square meters, so you still need to articulate your business around that fact.
The share of capital needed along with the annual audit reports enforceable by the authorities are also different from “zone to zone”, so you will need to do a proper background to fully understand what suits best your current business strategy.
You should also investigate how your nationality is regulated within UAE legislation. For example, there are certain restrictions regarding the possibility for a national to be a shareholder of a company.
Investigating the Free Zone’s banking options is amongst the most crucial things to do. As with every other country, opening a bank account encompasses a degree of bureaucracy, which is why delegating that to a friend or acquaintance is probably the wrong thing to do. Experts, in this case, are your best call.
THE OFFSHORE OPTION
An Offshore Company is one of the greatest alternatives to Free Zones companies, even when it’s less popular due to the impossibility to acquire a visa through its set tup.
However, if you want to do business exclusively outside the UAE, leveraging banking alternatives and enjoying tax exemptions, an offshore company is the best shot you have.
When opening one of these instruments, you have no need to rent a physical office in the country. On top of that, the company’s address can be the same as the registered agent.
For that reason, the only way in which the company can be submitted as an offshore business in Dubai is through a registered agent. The investor cannot be the one to do so.
OPENING AN EMIRATI COMPANY
When focusing on starting a retail business, aligning yourself with an already-existing local company is the best way to go. Such a company should be registered in the Department of Economic Development (DED), and if your desire is to have a commercial license, said local partner should account for the ownership of 50+1% of the company’s shares, while the foreigner owns less than half.
Amongst the activities you could endure in the UAE, there is:
- Construction
- Retail Trade.
- Transportation services.
- Communication.
- Real Estate and Leasing.
- Financial Services.
On the other hand, if your plan is to acquire professional licensing, you are allowed to own the totality of the company. These activities include:
- Management services.
- Restaurants.
- Beauty salons and Spa.
- Coffee Shops and more.
However, these types of companies, both professional or commercial, do require the renting of a physical office within the country, as without it the license will never be granted to you. The upside is that you will be eligible to a residency visa thanks to the local company sponsorship program.
This type of company allows the development of any activity in the United Arab Emirates and gives the possibility to deal directly with private individuals.
It is important to know that it is true that there is no tax, but there is a customs duty of 5% which is withheld in case of import. With this solution, it is possible to hire employees, for which the local labor law will be taken into account.
The recent good news is that companies based in Dubai can be foreign-owned in their entirety. This is true ever since June of last year. You won’t need local partnerships for any type of business, not even those registered outside Free Zones.
Also, it’s important to say that the UAE government approved a 9% tax only on local companies currently doing business within the country. This new legislation will take effect in June 2023, and it will not be enforced in the free zones.
WHY PICK DUBAI FOR YOUR UPCOMING INVESTMENT?
The United Arab Emirates is one of the richest countries in the world, supporting a liberal and open economy. It is not a tax haven with shell companies but a strong economy and a population of more than 10 million people, prosperous and industrial.
It enjoys the fastest growth in the world and adheres to global practices and encourages entrepreneurs to invest in good business ideas. In addition, the varied operations they offer involve lower taxes and offer full capital repatriation with no currency restrictions.
This type of financial freedom is rare in highly developed businesses. Therefore, entrepreneurs from all over the world find abundant opportunities and potential in the UAE market with an excellent jurisdiction to incorporate their companies.
There is a trend amongst amateur businessmen to deploy “do-it-yourself” strategies, believing that online websites are legitimate sellers of companies. However, most of the time it turns out to be a scam, which translates into them losing both time and capital.
For that reason, we cannot emphasize enough the importance of reaching out to the real experts on these markets. Not only are they unfamiliar to you and your culture, but also you will need assistance in terms of network and local-related intricacies in order to succeed.
We offer financial consulting services and business registration support for those seeking to immerse themselves in the Dubai economy. Our team is ready to construct a pathway specially designed for your situation, in any of the 50 free zones in the UAE, regardless of the corporate structure you are after, and with the best banking opportunities out there.
Just contact our experts at Centurion Capital and realize how close you are to maximizing your wealth!
Warning: The content of this article does not constitute legal or tax advice. It is provided for general informational purposes only and not for the purpose of offering any warranty or guarantee. As laws change frequently, personalized professional advice is absolutely necessary.
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