The United Arab Emirates is a state that has been constantly heard for several years. The UAE is actively discussed by the world community as the largest tourist center, as well as a transport and trade hub of global importance, a logistics hub. Of course, the Arab Emirates attracts a lot of interest from business.
It’s not a secret that the United Arab Emirates is one of the most attractive business regions in the world. Business activities in majority of the world’s most popular areas are developing so actively in this state, representative offices are functioning here, as well as the large companies’ management capacities of a significant percentage are currently occupying leading positions in the market.
The business environment in the Emirates is attractive and favorable, which, in fact, many big businessmen are betting on. First of all, it should be noted that the scale of the local market and the high consumer potential of the country’s population influence the UAE business segment formation. Also, it is worth considering that the United Arab Emirates is always prestige and security, because not only social and infrastructure conditions contribute to the active development of commercial and entrepreneurial activities in the country, but the business sphere is also fully supported by local legislation.
Advantages of the UAE legislation from the business point of view
As you know, the modern business niche is actively developing all over the world, and many potential investors and shareholders are trying to choose the most profitable “corner” for their activities, where it will be possible not only to get the maximum profit from their work, but also to feel confident and stable. Undoubtedly, any activity in the business context has many obstacles, including from the legislation of the state where it was established. Therefore, it is fundamentally important to determine the most favorable conditions for ourselves, and within the actively developing globalization, including through the lens of business, the choice is quite impressive.
The legislation of the United Arab Emirates is one of the most attractive moments, if we talk about the opportunities and benefits of modern entrepreneurial activities in this country.
Certainly, the taxation system in the Emirates is the most discussed topic by the world business community. Over the years, the United Arab Emirates is considered a true “tax haven”, because modern tax jurisdiction opens a lot of profitable sides for doing business in contact with this state.
Are there any taxes in the Emirates?
The answer to the question of whether there are taxes in the UAE is certainly concerning a huge percentage of businessmen from all over the world. Previously, it was often heard that after opening a business in the United Arab Emirates, the shareholder completely exempts himself from taxes. Of course, such a judgment is wrong. The tax system of the United Arab Emirates implies payment of some rates by the enterprises’ foreign shareholders, depending on the rights it works on or was registered in the country.
The taxation procedure in the UAE is very simple, however, it will be necessary to undergo a number of obligatory procedures to become a tax resident of the state with the prospect of using all the advantages of the local tax jurisdiction.
The taxpayer’s status presence is being confirmed with the corresponding Certificate of a tax resident status holding (Tax Domicile Certificate). The document is being issued to business entities that were previously established by foreign citizens for a period of one year. In order to obtain the taxpayer’s status by a legal entity, it is necessary to provide documentation on the company’s registration in the UAE, a copy of the passport, with the resident category visa presence, as well as the visa copy. The enterprise manager or shareholder should also have resident visa in force. You should also provide an agreement on renting an office in the Emirates, auditing and bank statements from corporate accounts for the last year that show the company’s financial progress for the last 6 months.
Thus, having received the taxpayer’s status, a company can be exempted from paying taxes on income, corporate duties, the individual entrepreneurs and employees of organizations registered in the UAE are not obligated to pay income taxes.
At the same time, if the company operates within one of the FEZ, it is exempted from paying any taxes for a period of 15 years from the date of the enterprise establishment. After this time expires, there is an opportunity to prolong it.
In particular, the entrepreneurs need to pay attention to some changes that have affected the UAE legislation, including the local tax system.
In addition, the United Arab Emirates is not only the holder of one of the most flexible systems for foreign investors, but also known as a specific offshore zone. Indeed, the opportunity to establish various forms of business, including companies that operate on the domestic market of the UAE, enterprises operating within the Free Economic Zones, as well as off-shores is provided in the Emirates.
The last one is often arising genuine interest among business representatives from around the world. Over the past decade the offshore companies in the UAE have enjoyed extraordinary popularity, since the local offshore companies have the most unblemished reputation around the world. Emirates are not a classic offshore jurisdiction and do not provide beneficiaries with the opportunity to open so-called Shelf Companies, which favorably distinguishes the country among the well known regions with classical offshore jurisdictions.
How the UAE tax legislation changes have come into force?
Among the main changes in the UAE tax legislation made in the last year, the maximum number of people has actively discussed the introduction of VAT in the country. This decision by the local authorities was incomprehensible or impractical for the majority, but it should be emphasized that, due to this completely new, more ambitious opportunities open for the foreign business in the Emirates, in order that they could reach a new level at the world market.
All the most significant reforms and changes in the United Arab Emirates tax jurisdiction, as well as the country’s legislation were discussed since the end of the summer of 2017. The majority of them have entered into force immediately with the arrival of the next, 2018; therefore, the interested people should study all issues and innovations that can certainly affect their commercial and entrepreneurial activities in more details.
There is an opinion that taxes in the United Arab Emirates are almost completely absent, however, it is not exclusively true. Indeed, some rates are absent in the country, but it is necessary to clearly understand the difference between different business forms and become familiar with all the conditions of their existence in the country. Having studied all the nuances of the UAE tax jurisdiction and the taxation principles, implementing personal real business model, a foreign investor can actually «draw out a winning ticket», ensuring himself with the safest, most beneficial and favorable conditions for functioning.
So, at the end of August 2017, the government of the United Arab Emirates published Federal Law No. 8, which regulates the introduction of VAT in the Persian Gulf countries (the initiative is based on the Persian Gulf Cooperation Council’s Single Agreement on Value Added Tax). In addition to the Arab Emirates, Saudi Arabia, Bahrain, Oman, Kuwait and Qatar have also entered the list of countries that undertake to introduce VAT.
The Eighth Federal Law or «The Federal Decree-Law No. 8 of 2017» states that VAT in the United Arab Emirates comes into force by January 1, 2018, together with Saudi Arabia. The remaining member countries of the Single VAT Agreement plan to introduce a value-added tax with the beginning of the next year, 2019. At the same time, the official executive rules to the Law, which oversees the process of entering VAT by the power of the Emirates, have not yet been made public.
Based on the published law, the United Arab Emirates introduces a Value Added Tax of 5%. It was such a standard rate that was agreed upon by all countries of the Persian Gulf Council.
In addition, the VAT law in the UAE and Saudi Arabia also provides for a list of activities that will not be subject to this tax, that is, transactions with a 0% rate. Basically, the taxation rules remain unchanged and correspond to acknowledged world principles.
At the same time, it should be emphasized that there are a number of nuances that distinguish the principle of VAT application between the UAE, Saudi Arabia, other Persian Gulf countries, and also in the world. All these differences are worth remembering and taking into account, when planning for the next year. For example, the provision of public transport services in the United Arab Emirates is exempted from VAT, while Saudi Arabia does not release this line of business from a tax rate of 5%. The same is true for services in the healthcare sector: they are subject to a 0% VAT rate in the UAE, the VAT for this type of activity is a standard 5% in Saudi Arabia.
It is worth emphasizing that such changes in the United Arab Emirates tax legislation will significantly affect the companies and corporations functioning in the country. All shareholders and entrepreneurs should clearly understand that it is now fundamentally important to revise internal corporate policy in time. And it needs to be done both in the context of the accounting operations’ organization, and in terms of staff discipline. The same applies if the company implements taxable and non-taxable operations: in such situations, the principle of VAT distribution between transactions established by the Executive Rules to the VAT Law applies.
VAT payer’s registration in the United Arab Emirates
With the advent of 2018, the enterprises that operate in the UAE must register themselves as a VAT payer. The value-added tax payers’ obligatory registration has already started today, despite the fact that the executive regulations to the relevant law are at the development stage.
Since the beginning of 2018, the enterprises that fall under the requirements of the VAT Law will be invited to register with the relevant supervisory authorities. The body that regulates the VAT payers’ registration is the Federal Tax Office or the Federal Tax Authority.
Among such companies, the invitations have already been received (by October 31) by those whose amount of taxable transactions exceeded 150 million dirhams or more during the past year. The Internal Revenue Service of the United Arab Emirates (FTA) has also informed about the need to register a company with the turnover of 10 million dirhams or more before November 30, 2017.
Accordingly, other companies and organizations must register as the VAT payers in accordance with the following criteria:
- The annual taxable or imported transactions amount exceeded the registration threshold of 375 thousand dirhams. Such enterprises are required to register as an additional value taxpayer.
- The total taxable or import transactions amount for the last 12 months did not exceed the registration threshold of 375 thousand dirhams, but the company’s turnover exceeded the minimum threshold amount of 185 thousand dirhams. Such enterprises are not obliged to register as the VAT payers, however, if necessary, they can do so on a voluntary basis.
- The companies that did not exceed the total annual expenditure of 185 thousand dirhams will also be able to voluntarily register as the VAT payer. They can do this voluntarily, which will be very useful for business, which is at the activities starting stage.
- Operations that are not subject to VAT, as well as VAT-exempt transactions will not be taken into account.
The non-resident companies should not comply with thresholds for registration; therefore, in case of their activities within the UAE, they are obliged to register as the VAT payers. For example, it can be organizations that provide repair services in buildings that are located on the United Arab Emirates territory.
It is also worth noting that it is possible to register a VAT payer group in the Emirates. This can affect organizations that are residents of the state, which are linked by a single management center. In this case, transactions between related firms, or subsidiaries and parent companies are not subject to VAT.
In general, despite the Value Added Tax introduction in the United Arab Emirates, the country’s tax legislation remains one of the most loyal throughout the world. The Emirates’ fiscal system implies a very mild attitude to the individual entrepreneurs and legal entities incomes, therefore both citizens and residents remain exempt from income tax, as well as social and corporate fees in the country.
Nowadays, the prevailing number of companies operating in the Arab Emirates, whose shareholders are foreign citizens, are exempt from most fees, but they will not have any problems with double taxation that may occur if they register in other economically attractive regions (including offshore jurisdictions). Taxes in the United Arab Emirates are not levied from entrepreneurs operating in local zones with free economic conditions (FEZs), as well as organizations registered under offshore conditions. In addition, employees working in these companies are still not subject to taxation.
Business without taxes in the UAE is real
The Business without borders team is ready to advise you on tax planning issues, as well as business registration in the UAE. Highly qualified and experienced professionals in the taxation field will provide all the necessary information, as well as assist in the registration procedures implementation and interaction with the Arab Emirates tax authorities. We will help to ensure the most smooth business transition taking into account the new requirements for VAT and help to adapt, assessing the impact of VAT on your business.