International Structuring in the UAE
by Daniel Hague
The United Arab Emirates (UAE) is a federation of seven states, the most notable being Abu Dhabi, the island capital, and Dubai. The UAE is the most progressive country in the Middle East, providing a business-friendly environment, high quality of life, excellent infrastructure and transport links, and access to a wide range of banking facilities comparable to major financial centers around the world.
The availability of local and international banking facilities, combined with a wide variety of company formation options within a well-developed economy, gives the UAE a unique competitive advantage when compared to similar low-tax jurisdictions.
What are the company options?
The UAE provides numerous company formation options which can be grouped into three types:
Offshore companies – follows the International Business Company (IBC) structure found in traditional offshore jurisdictions like the BVI. The UAE’s offshore registries are located in Ras Al Khaimah and Jebel Ali in Dubai. Given that offshore companies are unable to conduct business within the UAE and cannot issue residency visas, they are best used for holding assets and asset protection or for international trading or consultancy firms. While it is possible to open local bank accounts for an offshore entity, it is becoming increasingly difficult and time-consuming and requires a lot of supporting documentation.
Free Zone companies – are perhaps the most common option for foreign investors as they permit complete foreign ownership and can issue residency visas to their staff. The UAE is home to over 45 Free Zones, which vary significantly in location, infrastructure and overall cost. While Free Zone companies can more easily open bank accounts than offshore companies, it is worth mentioning that some banks will not open accounts for companies based in the smaller, lesser-known Free Zones outside of Dubai and Abu Dhabi.
Local or Onshore companies – are only suitable for those looking to conduct a significant portion of their business locally. It is mandatory for onshore companies to relinquish 51% of their company shares to a local partner, which can be quite off-putting for foreign investors.
Time frame to incorporate
The time required to incorporate a company varies by company type. Since offshore companies do not have a physical presence in the UAE, they can be incorporated in a few days. The time to incorporate a Free Zone company will depend on the business activity type (certain activities require approvals from government departments, or require proof of renting physical office space, which may increase the overall processing time). However, in most cases one month should be sufficient to incorporate a Free Zone company. Because onshore companies must be registered with the Department of Economic Development (DED), require a local sponsor and must show proof of physical office space, the incorporation process is typically considerably longer and costlier than for a Free Zone company.
The visa process is straightforward and efficient and will typically take no longer than two weeks, including the application time, medical tests (blood test and chest x-ray) and processing of the Emirates identification card and visa stamp in the passport. Visas for staff of a Free Zone company are typically valid for three years and can be renewed as they near their expiry date. There is no requirement for a visa-holder to physically reside in the UAE; one visit for a day every six months is all that is required to maintain your visa.
No local taxes are levied on residents of the UAE beyond a 5% VAT on goods and services and corporate tax on foreign banks and oil companies. It is worth noting that the UAE does not currently offer a path to citizenship; although the government recently passed a law allowing expats to retire in the country, provided they own property worth Dh2 million, have savings of at least Dh1 million, or have an active income of at least Dh20,000 per month.
The substance of structures has become increasingly important in international tax planning with the introduction of such initiatives as Base Erosion Profit Shifting (BEPs) and the Common Reporting Standard (CRS) by the OECD. From an international structuring perspective, economic substance can be achieved through the incorporation of a Free Zone company. Free Zone companies can take advantage of a variety of office space for rent or purchase (from virtual space through to fully-serviced offices), access to local and international labor pools (with no restrictions on hiring foreign labor) and the ability to open personal and corporate bank accounts. When they can provide proof of residency (a tenancy contract), business owners of a company incorporated in a Free Zone can satisfy local and international substance requirements.
The availability of DTAAs
Public and private companies, as well as all residents of the UAE, benefit from more than 90 Double Taxation Agreements currently in place. Double Tax Treaties make the UAE a more attractive location in which to operate by reducing the tax levied in the foreign jurisdiction on profits remitted by Dubai-based entities. While many treaties offer companies or individuals full exemption from taxation, it is always worthwhile to consult a tax specialist who is familiar with the specific treaty that applies to you or your firm.
Tax Residence Certificates
The Ministry of Finance can issue tax residence certificates for both individuals and corporations. Tax certificates serve as the ultimate proof of residence when claiming the benefits of a tax treaty with a foreign tax authority. An individual or corporation that has maintained a presence in the UAE for at least six months can apply for a certificate, and the entire application process takes approximately one month.
What is your experience with the UAE?
Is the UAE a jurisdiction you are currently considering for your clients?
We would love to hear your feedback and answer any questions that you may have on using the UAE for international structuring.
Take a moment to follow us on LinkedIn and other social media platforms as we post weekly updates and insights which you may find interesting.