How to Choose the Right Type of Company To Register in Dubai

Taxation in the UAE

The country attracts entrepreneurs from all countries with comfortable taxation conditions. The current VAT is only 5% and applies only to transactions that take place within the country.

From June 1, 2023, new conditions come into effect. According to them, the tax rate increases to 9% if the income exceeds $102,000 per year. Start-ups, small businesses, and enterprises that provide public benefits, such as healthcare, are exempt from tax burdens. In addition, there is an exemption from VAT when the office is located in one of the emirates, and the company's activities are outside the country.

Before opening or relocating a business to the UAE, it is important to establish the right development strategy from the beginning. In addition, it is worth considering the type of company and its management structure.

Currently, many firms in the UAE register and operate in one of two directions:

• Free Zone (onshore and offshore companies in the free zone);
• Mainland Company (local company).

What is a Free Zone in the UAE

A Free Zone, or in other words, a duty-free trade zone, is a specific territory in the UAE where citizens of other countries can open various types of enterprises. The main feature is that a foreigner can own 100% of the capital.

Free Economic Zones (FEZs) especially attract foreign businessmen and investors with their unlimited opportunities for international business development. If you register your organization in one of these free zones, you can enjoy various privileges:

• 0% tax rate;
• exemption from corporate fees;
• minimal costs for energy resources;
• waiver of customs duties on various goods and services;
• stable legal base.

Currently, there are about 43 Free Zones in the UAE. Depending on the business activities, they are divided into sectors: trade, industrial, educational, informational, healthcare, and precious metals and stones. Each of these Free Economic Zones is located in one or several emirates, primarily in the territories of seaports and airports. Each has its own management body that regulates legal and trade relations between firms and the state, issuing permits for specific activities.

Local companies

A local company, or Mainland Company, is a company registered outside the Free Zones. The main requirement for opening one is to have an office. Before starting the registration process for a local company, a lease agreement for premises must be provided to the relevant authority. It should be issued only by the Land Department of one of the emirates.

Main advantages of registering a local company:

• choice of any field of activity;
• business operations are not limited to the UAE and Gulf countries;
• 0% income tax;
• simplified procedure for hiring employees and obtaining corresponding visas;
• no minimum capital requirement;
• the possibility to open an account with a local bank.

Onshore companies

An onshore company is a business registered in a UAE Free Zone. Its main advantage is exemption from all corporate fees, even with the presence of an office and active operations within the country.

Registration features:

• all legal entity documents must undergo legalization at the UAE Ministry of Foreign Affairs;
• to register a branch of a foreign company in the free zone, a complete set of documents from the parent company must be provided. They must be translated and legalized by the UAE Ministry of Foreign Affairs;
• the minimum amount of authorized capital is determined by the field of activity and the number of founders and business partners. On average, it ranges from $14,500 to $300,000. After registering an onshore company, the owner can dispose of the authorized capital at his discretion, with no restrictions;
• this type of company is considered resident. Therefore, before opening it, it is necessary to obtain a license for commercial, service, or production activities.

Offshore companies

Offshore companies are firms registered in the UAE, but they cannot operate within the country and deal with resident legal entities. Many foreign entrepreneurs register such types of companies in the UAE to reduce tax costs in their own country and to have the opportunity to open a bank account in the Emirates.

The main feature is the actual presence of a legal address without a physical office in the Free Economic Zone.

Main advantages of registering an offshore company:

• no annual financial reports and shareholder meetings;
• UAE authorities do not conduct currency checks on such firms;
• no taxes and duties;
• easy company liquidation.

Business can be managed from any location, significantly reducing office maintenance costs. However, obtaining residency with this type of company is impossible.

To relocate or register a company in the UAE, it is necessary to understand all the specifics and nuances. This will require a lot of time and effort. It is much more profitable to seek help from professionals. Our agency, The Level Consulting, will select the optimal types of companies in the UAE for registration. We offer services for opening and full business support.