Tax preferences for companies in the UAE

Tax preferences for firms in the UAE have made this country one of the most popular destinations for opening businesses abroad. In Dubai and other cities of the Emirates, many types of payments present in other countries are absent. The government generates revenue from the oil industry, tourism, and other rapidly developing sectors, which allows reducing taxation for businesses from other fields.

Brief overview of the tax system in the UAE

The taxation system in the UAE significantly differs from the Russian one. For example, it lacks personal income tax, capital gains tax, luxury tax, stamp duty, and government fees. Additionally, the country has no currency control, which simplifies international business operations.

However, like in other countries, there are mandatory payments in the UAE, and their amount may vary in different regions of the country.

Federal taxes

At the federal level, the following fees are levied:

• Social security contribution for UAE and GCC citizens. The total rate is 17.5%, with 12.5% paid by the employer and the remainder withheld from the citizen's wages.
• VAT. The VAT rate in the UAE is only 5%.
• Tax on leased commercial property. The standard rate is 10% of the rental value, payable by the tenant.
• Annual fee for organizations amounting to 2,000 AED. This fee must be paid annually from the registration date of the company.

A special category of taxes is excise taxes, which are levied on goods deemed harmful to human health and the environment. These include carbonated beverages, tobacco products, smoking products, etc.

Emirate taxes

From June 2023, a corporate income tax will be introduced for legal entities in certain emirates. Companies with an annual income exceeding 375,000 AED will be required to pay it. Oil and gas organizations are subject to corporate income tax, and branches of foreign banks operating in the country are also taxed.

At the local level, registration fees are levied on real estate transactions, and special fees are set for tourists.

Tax rates

The corporate income tax rate for legal entities from 2023 will be 9%, whereas it was not applicable before. The 9% corporate tax will not affect free zones.

The corporate tax rate for oil and gas extraction organizations is 55%. Foreign banks are subject to a 20% tax. Abu Dhabi has a higher social security contribution rate of 20%, with 15% paid by the employer.

Advantages of the tax system in the UAE for companies

For businesses, this system remains more favorable than in other countries, including Russia. Several key advantages can be listed.

Absence of corporate and personal taxation

Individual income tax is not paid in principle in the country, and the tax rate for organizations is not established in all emirates and applies only to companies with a sufficiently large revenue - from 375,000 AED. Small businesses are effectively exempt from corporate taxation.

Absence of taxes on profit and capital

There is no requirement to pay taxes on dividends from shares, on capital gains, there is no stamp duty and various fees, which become a significant burden for Russian businesses.

Low tax rates on VAT and customs duties

VAT is only 5%, while in Russia it reaches 20%. Customs duties are practically absent. If an enterprise is registered in a free economic zone, it is possible to import raw materials across the border and export finished goods without additional payments.

Possibility of repatriation of income

The UAE has concluded 99 agreements with countries around the world on the avoidance of double taxation. In addition, repatriation of income is provided without restrictions - it is possible to repatriate all capital invested in the country back to the homeland.

Tax zones in the UAE

Foreigners are attracted by the possibility of registering companies in Free Zones - special economic zones (SEZs) with additional favorable conditions for conducting commercial activities.

What are tax zones and how do they work?

A tax zone is an area with a specially established regime for entrepreneurs and companies. In SEZs, these conditions are usually more favorable for foreigners, but each of them has its own restrictions on types of commercial activities.

Types of tax zones in the UAE

In the UAE, two types of tax zones can be distinguished:

• local. They are intended for the registration of companies operating within the country. At least 51% of the organization must be owned by a UAE citizen;
• free (Free Zone). They can operate both in the UAE and abroad, and they have a preferential tax regime. However, a company can only operate within the territory of the SEZ. 100% of the company can be owned by foreign owners.

An offshore zone can be considered a special form of an economic zone. In the UAE, it is possible to register a business under special preferential conditions, but it will only be able to operate outside the country. Banks, insurance companies, and some other types of activities cannot be registered in offshore zones, but this registration format is suitable for organizing international trade.

Advantages and disadvantages of working in tax zones

Each zone has its pros and cons. When opening a company within the country, there will be more expenses for paying taxes, and the registration process will be more complicated. However, it will be the optimal solution for business within the country. When choosing an SEZ, taxation is significantly reduced, but it will be necessary to adhere to restrictions when choosing a zone for registration.

How to obtain tax preferences in the UAE

To obtain preferences, it will be necessary to legally register a business in the Emirates according to one of the possible schemes. The country requires strict compliance with local legislation, and any violations are quickly identified and punished quite strictly.

Options for registering a company in the UAE

To start commercial activities in the Emirates, you can choose one of the following registration schemes:

• contracting with an agent or distributor. In this case, the foreign organization is not actually present in the country but uses the offices and personnel of an already open local firm. A commercial representation agreement is concluded, under which the organization can buy and sell goods with payment of an agent's commission for each transaction conducted;
• opening a company in the country. To do this, an economic zone is selected, and the organization must go through the registration procedure with the payment of prescribed fees and the preparation of documents;
• participation in a joint venture. The foreign company enters into an agreement with a local partner and acquires a package of shares giving the right to management. At the same time, for the registration of a mainland enterprise outside the SEZ, the rule must be observed: 51% of the shares remain with the local owner.

Requirements for obtaining tax preferences

To receive tax benefits, an enterprise must be registered in an SEZ or offshore, which entitles it to enjoy all the advantages of the Emirates system. The company must operate in compliance with local legislation. The name chosen at registration must comply with established restrictions.

Restrictions and requirements for company owners

All organizations in the UAE, except firms registered in offshore zones, are required to undergo a licensing procedure annually. To renew the license, it will be necessary to pass an inspection confirming compliance with the registered direction of economic activity, the amount of authorized capital, and other parameters. Detection of violations may lead to the loss of the license and a ban on conducting activities in the country.

How to choose the right approach to tax optimization in the UAE

To optimize taxation in the Emirates, it is necessary to choose the most suitable economic zone for company registration from the very beginning and carefully study local commercial legislation. Although the tax burden here is lower, taxation still exists. And it is important to choose the right way to open a business.

Consideration of the company's goals and business model requirements

First of all, it is necessary to determine the direction of activity and prospects for its development. If the company does not intend to work in the country, it is better to opt for an offshore, and for conducting business in the Emirates, you can choose a free economic zone or a local location. Registration in a Free Zone will depend on the direction of work.

Choosing the best option for company registration and tax zone

Before registration, it is necessary to study the features of commercial activities in various economic zones to choose the most suitable option. In the Emirates, there are several dozen SEZs with special conditions. Consulting experts will allow you to learn in advance about the advantages and disadvantages of each of them.

Collaboration with experts and consultants

The Level Consulting will provide detailed consultations on all issues of business registration in the Emirates. Our specialists will explain all the nuances of opening accounts, obtaining visas for permanent residence in the country, preparing contracts with partners, and more. Collaboration with experts will help avoid serious mistakes that can lead to unnecessary financial losses.