Incorporating a Company in the UAE. Considerations

 

UAE - Dubai and Abu Dhabi Companies

Dubai as well as Abu Dhabi companies are commonly used in many international tax structures for multiple reasons (holding, trading, banking, middle east presence amongst a few). The recent invasion by Russia to Ukraine boosted Dubai and the UAE even more with thousand of company incorporation and investors relocation in the region; unwelcome by the West Russians had to move their companies to the UAE, majority in Dubai, in order to secure banking and money transfers. Others bought local properties to preserve and safe their capital.

 

It is not a surprise that Dubai is currently a significant international financial centre with continuous flow of incoming businesses and tourism. The amazing experiences it can offer, beautiful landscapes and buildings together with the glamorous lifestyle gives visitors unforgettable experiences, memories and their moneys worth.

 

Set aside the personal experiences, in this article we examine why Dubai companies are so popular in international tax planning solutions.

 

Note: For the purpose of this article when we refer to UAE companies we refer to all 7 emirate companies as the UAE law is universal and across the entire UAE region. However to assist our readers we commonly refer to Dubai and Abu Dhabi companies which are the more common companies used in international tax planning solutions.

 

Why are Dubai and Abu Dhabi (UAE Companies) Popular

 

1. Zero / Low Taxation on profits

UAE companies are taxed only at 9% with the majority of small business being exempted entirely from corporation tax due to the small business tax relief and some other applicable thresholds. When services are provided outside the UAE, corporation tax is also exempted. There are many useful tax allowable items as well as tax benefits given by the local tax office which reduce the corporation tax of local companies, significantly. 

 

Irrespective of the tax liability a company may have, almost all UAE companies are required to prepare and file a company tax return, a service outsourced to local audit & assurance firms like Berkley.ae. 

 

2. Banking made easy

UAE recognises the value of money and cash. As such local banks treat its wealthy customers (big depositors) exclusively making their banking needs seamless and enjoyable. 

 

Deepening on the size of the deposit, your local bank will categorise you to different classes, gold being the most exclusive including dedicated banking assistance, money transfers almost unrestricted everywhere in the world, cash deposits and withdrawals almost unrestricted anywhere in the world and so on. You will even have a personalised mobile application demonstrating your banking status.

 

Unlike other European banking institutions, banking in the UAE is made easy and usually takes 2 - 3 working days for your bank account to be fully operative followed by a simple banking application form.

 

Need help opening a bank in the UAE? Contact us at k.tramountanellis@berkley.ae and we will more than happy to assist you. 

 

Differences from other jurisdictions

 

1. Cost of setting up a company

Unlike other jurisdictions, UAE companies cost significantly more than other jurisdictions and there is a reason for this. For instance, unlike Cyprus and the UK local disbursements (money paid to local authorities for the incorporation) are significant and could reach up to USD 12k per company. 

 

Depending on which financial centre or free zone the set up will take place, costs to the local government vary with the smaller free zones being usually the cheapest options for small clients and the DIFC and AFGM being the most expensive ones.

 

In addition, unlike the other jurisdictions as mentioned above, in the UAE not one size fits all. 

 

Different type of activities can be provided by specific companies in specific free zones. Certain activities require specific licensing and have different requirements. Therefore, local service providers like our firm charge different fees as all of the above must be considered in order to decide the best vehicle for the client. Coupled to the above are also the banking requirements with can be easy or difficult depending on the nationality of the applicant in combination with the selected company type.

 

       2. Types of companies

In the UAE there are the below types of companies:

• DIFC 
• ADGM
• Free Zone 
• Mainland
• Off shore
• Governmental companies

 

Each of the above categories of companies contain subcategories of types of companies allowed to perform specific services. Lets take the free zone type of companies for instance. 

 

Example: Free Zone Companies

There are 40 different types of free zone companies each servicing a different company activity. As such a technology company will be established in a different free zone company than a consulting company. There is a clear separation of activities making it is easy for the regulators to monitor and control all types of companies in the UAE. It is also common to have several options for similar type services but with different requirements. In other words the IT company could be establish (for example purposes) in 2 free zones but each of these two free zones may apply differ requirements to their companies making them therefore attractive for some clients and unattractive for others. 

 

Therefore expert advice is required to determine where is best for the company to be incorporated always taking into consideration the set up the company, banking needs, activities of the company and the business profile.

 

3. Activities of UAE Companies

Unlike the majority of countries and jurisdictions where one company can perform multiple activities in the UAE this is not the case. The company must specify at its incorporation level the type of services it indents to offer. It can select a bundle from a prescribed list but the choice of services per company is limited and of similar nature. Usually each company can provide up to 5 services which are similar to each other.

 

Example:

It could be the case that a free zone company registered to provide IT services can not also sell IT products. Whether or not it can, it must be reviewed at the incorporation phase or after the company is formed by paying the local free zone to add additional licenses to the company. 

 

Similarly this IT company may be restricted to have more than 4 types of services and in the event it wants to sell its IT products a different newly formed company may be needed.

 

4. Taxation and Audit Requirements. Newly introduced.

The taxation requirements for almost all companies in the UAE has been introduced for year endings 2024 and as such we have experienced some inconsistencies towards their application. It is only natural as Dubai accommodates several hundreds of different foreign interest companies and the new tax and audit requirements and thresholds have been recently been drafted. 

 

As a result, some confusion make exist between service providers and the federal tax authority as well as the audit regulator in some non traditional set ups and activities contrary to other jurisdictions where the tax and audit requirement exist for many years.

 

5. Where is the Centre of Dubai?

There is no centre in Dubai, due the the free zone and mainland geographical separation. 

 

Therefore unlike other jurisdictions where usually the business centre is somewhere in the capital of the country, Dubai is not like this. If you are dealing withy DIFC regulated companies then you should be located close to the DIFC as all these companies reside in the DIFC. On the other hand if you are dealing with mainland companies you should ensure accommodation / close proximity to mainland and so forth. 

 

6. Professional Meetings in Dubai

Professional meetings in Dubai can take place literally anywhere. Reason? 

 

The heavy traffic and as explained above the geographical segregation of the different business centres and free zones coupled with the continuous development taking place everywhere in Dubai. People move everywhere in Dubai and to save time they arrange their meetings as convenient. Having said that, important meetings are always facilitated at business premises. 

 

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. Please consult with a professional tax advisor for advice on your specific situation.