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Taxes for setting up a business in UAE & UAE Golden Visa – that will be the topic of today’s article.
Before introducing this article, if you are interested in our core services which are expat financial, insurance and mortgages, you can contact me here.
The best time to consider your financial situation is when you are moving to a new country.
Introduction
Taxes are an important financial aspect that needs to be prioritized by the individuals who move to another country.
They might not be familiar with the tax system and in such a situation, they end up paying penalties because of the mistakes they make unintentionally.
In today’s article, we will focus on the details related to the corporate taxes in UAE, and while doing that, we will cover all the information related to expat taxes and individual taxes for residents.
Even though the big picture is to provide a tax guide for businesses in UAE, we also provided the details for individuals and non-resident corporate entities.
Some expats intend to start a business in other countries and the corporate tax details come in handy for those people.
General Information:
UAE, which stands for “United Arab Emirate”, is located in the southeastern part of the Arabian Peninsula and consists of seven emirates namely “Abu Dhabi”, “Dubai”, “Sharjah”, “Ajman”, “Umm Al-Quwain”, “Ras Al-Khaimah”, and “Fujairah”.
This federation was officially formed in the year 1971, its capital is Abu Dhabi, and the official language of UAE is Arabic. Even though Arabic is the official language, the widely spoken language of the UAE is English.
The currency of UAE. Is known as United Arab Emirates dirham (AED), and by the time of writing this article, 1 AED is equivalent to 0.27 USD.
UAE is known to have a stable political system, excellent infrastructure, and best-in-class trade regimes all over the Gulf region.
The importance of the UAE as a business hub with regional diversity is increasing daily, which attracts more business owners from around the world.
To most people’s surprise, UAE has been able to become a region whose economy stopped being reliant on the energy sector for growth and development. UAE derives a considerable amount of gross domestic product (GDP) from non-oil sectors.
Why would anyone wish to have a business in UAE? Well, if you set up a business in UAE or invest a substantial amount of money, then you would be allowed to have a long-term visa in UAE.
This happens to be one of the most important reasons why people wish to have a visa in the UAE. Moreover, UAE happens to be a tax haven with no taxes imposed on individuals.
Let us have a brief look at the visa details in UAE and other requirements to obtaining the golden visa in UAE.
Golden Visa rules:
A Visa or a residency permit is necessary for living or working in the UAE. Long-term visas can be obtained through investment, business ownership, or an employment contract offered by a UAE employer.
This means you might even be able to obtain a long-term visa in UAE by being able to set up a business.
People who want to have a long-term visa should be able to meet the requirements, which have been provided below.
Investing an amount of at least AED 10 million (USD 2.7 million approx.) in public investments such as:
The visa would only be granted under the following conditions:
Business partners can be included in the visa program, where the business partner should be able to contribute another AED 10 million.
This long-term visa can include the spouse and children of the individual and along with them, an advisor and an executive director can also be included.
People who want to invest from abroad are allowed to apply for a multiple-entry permit, which is valid for six months.
People who have specialized talents and people belonging to research fields of science and knowledge like doctors, scientists, inventors, specialists, and creative persons belonging to fields of culture or art are eligible for this visa.
These individuals should be having an employment contract in their specialized field of priority in UAE. This visa is extended for the wife and children of an individual who acquired it.
There are three categories for this visa, which are as follows.
People must invest an amount of at least AED 5 million in a property located in the UAE. The amount invested by the person should not be borrowed and the property should be retained for at least three years.
Entrepreneurs who have an existing business project with a capital of at least AED 500,000 or the people who obtain the approval of an accredited business incubator in the UAE.
Business Incubator is an organization that helps in the growth and success of companies by providing business support resources such as physical space, networking connections, capital, business coaching, etc.
Students who are extremely well in their studies with a minimum grade of 95% in secondary school and students who have a distinction GPA of at least 3.75% upon graduation.
For entrepreneurs, the long-term visa can include the spouse, children, one business partner, and three executives. For outstanding students, the long-term visa included their families as well.
Now, let us know about all the details regarding corporate taxation in UAE, and how would an individual be taxed if they opt for having a business in UAE.
Taxes for setting up a business in UAE:
Corporate Income Tax:
In UAE, there is no corporate income tax regime. Instead, the corporate income tax is determined on a territorial basis according to the Tax Decrees that were put into effect by the government of each emirate individually.
Some Emirates issue Banking Tax Decrees in particular, which levy corporate income tax on the branches of foreign banks that are operating in the UAE.
According to the Tax Decrees, entities are required to pay a corporate income tax at a rate of up to 55% under a progressive tax system. Branches of foreign banks operating in the UAE are taxed at a flat rate of 20%.
To make it simpler to understand, the corporate income tax in the UAE is only imposed on the non-resident oil companies that are involved with petroleum-related activities or foreign bank branches located in UAE.
However, the Free Zones in the UAE have their own rules and regulations and offer tax holidays or allow entities to be exempt from taxes for setting up businesses in the free zone.
These tax holidays and tax exemptions might be offered for a period of around 15 to 50 years, depending on the Free Zones’ rules and regulations.
By keeping all the above-mentioned aspects in mind, it has been made clear that most of the corporate entities are not necessitated to file corporate income tax returns, regardless of where the business was registered.
Based on the corporate tax environment in the UAE, aspects related to deductibility, double taxation of dividends and gains, and being able to carry forward tax losses are practically limited from a perspective of domestic corporate income tax, which applies to most businesses operating in the UAE.
As for the branches of foreign entities, the tax is determined as per the CIT decree of the respective Emirate, and it is suggested to consult the decree for determining the taxes levied.
In some Emirates, branches of foreign banks are overseen by the banking decrees and based on that, the tax rate is 20% on the taxable income.
Anyhow, the branches of entities belonging to the UAE are not subject to branch profits tax. Repatriation of the profits occurring between branches and head offices is not subject to WHT or any other form of repatriation tax in the UAE.
Capital Gains Tax:
There is no Capital Gains Tax in UAE unless the capital gains are subject to tax as per a tax decree or concession agreement, or a banking tax decree.
Corporate Residence:
UAE follows the French concept of territoriality and determines tax residence under the tax decrees of various emirates.
To those who may not be familiar, under this French concept of territoriality, profits are taxed based on the territorial nexus, and profits derived from sources outside of the country are not taxed.
Permanent Establishment (PE):
The definition of PE in UAE is as per Article 5 of the 2014 OECD Model Tax Convention.
The companies that are determined as non-resident while operating in an Emirate through a PE are prima facie taxable as per the respective Emirate’s Tax Decree.
This definition of PE usually included a branch, operational location, or a fixed place of business of a non-resident company.
Even an agent who has or regularly utilizes the authority of concluding contracts on behalf of a non-resident company would be treated as a PE according to this definition.
Value Added Tax (VAT):
In UAE, the value-added tax was established in the year 2018, and the usual tax rate is 5%, which is levied on most of the goods and services available.
However, some goods and services in the UAE are imposed with a 0% rate or are exempt from VAT after being able to meet some specific conditions.
The 0% VAT rate is for goods and services exported outside of the VAT-implementing GCC (Gulf Cooperation Council) member countries, international transports, to provide crude/natural gas, supplying residential real estate, healthcare, education, etc.
Certain types of financial services are exempt from VAT additionally to the supply of residential real estate.
Transactions related to an empty land and domestic passenger transport are also exempt from VAT in the UAE.
Transactions in goods between companies that operate in Designated Free Zones (DZs) are also exempt from VAT.
In general, excess input VAT can be claimed back from the FTA as per a specific procedure. The VAT credits can also be carried forward to the following years and be used as a tax credit.
Businesses that do not abide by the VAT obligations in the UAE are subject to fines and penalties.
Customs Duty:
Customs Duty is levied at a rate of 5% on the cost, insurance, and freight (CIF) value of the imports made into the UAE.
The rate for customs duty may differ for some specific products such as alcohol, tobacco, etc., and there may be certain exemptions and reliefs as well.
Additionally, there is an anti-dumping duty levied on the import of some goods like car batteries, ceramic tiles, porcelain tiles, hydraulic cement, etc.
The rates for these anti-dumping duties might differ as per the HS codes of those goods, and the country from which they are being imported, or the country where they’ve originated.
In some particular cases, these anti-dumping duties might be as high as 67.5%of the CIF value of those goods.
There are no customs duties levied on the trades between the UAE and any of the GCC member countries.
This is because UAE is a member of the GCC Customs Union that was formed in the year 2003 for removing the trade complexities between the GCC member countries.
Additionally, UAE allows duty-free imports of various goods that originated in Singapore or member countries of the Greater Arab Free Trade Agreement, or the countries of the European Free Trade Association.
Even though UAE free trade zones are the regions located within the territory of the UAE, they are still considered to be outside the scope of customs territory.
Hence, the goods that have been imported into these free trade zones of UAE are not imposed with a customs duty and the customs duty won’t apply until the goods are imported into the GCC local market.
Excise Tax:
UAE has an excise tax, which is imposed on a wide range of products as per the following rates.
Municipal Tax/Property Tax:
Most Emirates of the UAE levy a municipality tax on properties, which is according to the annual rental value. However, the tenants are obligated to pay this tax in the UAE. In certain situations, the tax might be payable by both the owners and tenants.
For instance, if we see the situation in Dubai, the property tax is 2.5% on the annual rental value of commercial properties, which is to be paid by property owners, whereas the rate is 5% for residential properties, which is to be paid by tenants.
In addition to that, there might be a registration fee that is levied on the transfer of ownership of land or real property. In Dubai, the land registration fee is imposed at a rate of 4% of the fair market value.
This is just for reference, and these registration levies might vary for each Emirate.
Stamp Duty: No
Payroll Tax: No
Best small business ideas:
Given below are some of the best small business ideas that are known to be profitable if set up in the UAE.
These are just small businesses that are known to be profitable in UAE, however, the sectors that are proven to be beneficial are “Construction”, “E-Commerce”, “Tourism”, “Real Estate”, “Healthcare”, etc.
Steps of setting up a business in UAE:
Given below is a step-by-step procedure for setting up a business in UAE.
By then, you will have acquired your trade license and are all set to start your business.
Individual Taxation:
There is no personal income tax for individuals in the UAE, and because of that, there is no necessity for the registration of individual taxes or reporting the tax returns.
As there are personal income taxes at the federal level or Emirate level, there is no criteria that determine a person’s residence for tax purposes.
However, when the expat is from a country that has a double tax treaty (DTT) with UAE, then the individual might be able to acquire a Tax Residency Certificate offered by the UAE Federal Tax Authority.
This certificate states that the individual has met the criteria for residence in the UAE for tax purposes, concerning the specific DTT.
Social Security Contributions:
In the UAE, the social security regime applies only to the qualifying UAE employees and other GCC member country employees. People who don’t belong to GCC countries are not subject to social security contributions in the UAE.
For the resident employees, the social security contributions are determined at a rate of 17.5% of the employee’s gross salary as per the local employment contract.
Social security contributions are also applicable to employees belonging to the companies as well as the branches of companies belonging to Free Trade Zones.
In the 17.5%, employees are obliged to contribute 5% and the employers are required to contribute 12.5%.
However, in the Emirate of Abu Dhabi, the social security contribution rate is 20%, where the employers are required to contribute 15% and the employees are necessitated to contribute 5%.
When it comes to GCC nationals who are employed in the UAE, the employee contributions are determined as per the social security regulations in their country.
The employers are responsible for withholding and remitting the social security contributions on behalf of their employees.
Capital Gains Tax: No
Net Worth Tax: No
Inheritance Tax: No
Gift Tax: No
Estate Tax: No
Luxury Tax: No
Withholding Tax: No
Hotel Tax and Tourism Levies:
In most Emirates, there are hotel levies, which are imposed on the value of a hotel room rental, services, and entertainment. These levies vary based on the Emirate that imposes them.
In Dubai, a Tourism Dirham fee is imposed, which is a charge on guests and tenants of hotels/hotel apartments and ranges between AED 7 to AED 20 per room per night.
The actual fee may vary depending on the star classification of the respective hotel. For instance, a five-star hotel might levy a Tourism Dirham fee of AED 20 and a two-star hotel might levy AED 10.
From July 2021, hotels in the Emirate of Abu Dhabi are necessitated to levy a tourism fee of 6% of the room rate of the hotel, along with a destination fee of AED 15 per night.
In Dubai, the hotels are required to levy a municipality fee of 3.5% on the hotel sale, which used to be 7% previously and was reduced to 3.5% because of the COVID-19 Pandemic.
The same applies in Abu Dhabi, where the hotels are required to levy a municipality fee of 4%.
For those who may not be familiar, the hotel sale is the revenue obtained by hotels in UAE for the services they offer to guests or visitors such as rent, food, beverages, etc.
Transfer Tax:
A transfer charge is levied in the UAE on the direct transfers of real property in UAE and indirect transfers as well in some situations. This is also applicable to the shares of the companies that hold real estate located in the UAE.
In some specific situations, this transfer charge is also imposed on the partial transfers of real properties in the UAE.
The actual tax rate might vary according to the Emirate in which the property is situated. For instance, the transfer tax is 4% in the Emirate of Dubai.
In general, the transfer tax is to be paid by the buyer, yet in the Emirate of Dubai, it is distributed equally amongst the buyer and the seller.
Council Tax and Rental Tax:
In Dubai, council tax is secretly imposed on individuals while paying their utility bills, which is utilized for purposes such as streetlights, waste collection, etc.
This tax can also be collected in the form of a maintenance fee, and most people do not like the concept of being charged for this tax.
Additionally, you will be charged a 10% municipality tax and a 5% municipality tax on rented accommodations, which are usually collected through utility bills.
Departure Tax:
This is another tax that is levied in Dubai and people are charged a departure tax when they buy a plane ticket. This includes the airplanes that are leaving Dubai or landing there.
This is also a secret levy, which is charged while being included in the price of the plane ticket, regardless of the location where you purchase the ticket.
However, children having an age of fewer than two years, transit passengers, and individuals belonging to cabin crew are exempt from this tax.
Tax Treaties:
Yes, there are taxes levied on individuals, who are either residents of the UAE or non-residents. Yet, UAE has DTT in effect with many countries.
You might be wondering why there would be a double tax treaty when there are no taxes. Well, expats who are living in UAE and are obliged to pay taxes in their home country may be permitted tax relief.
Currently, 90 countries are having a DTT with UAE, while it has been estimated that DTT with 30 countries is still pending.
Bottom Line:
While living as an expat, it might be a bit hard for setting up a business, especially in countries where you are new.
You may have to consider some of the important aspects such as your ability to deal with the business expenses, ability to deal with losses, successfully managing all the activities, etc.
It should be taken into careful consideration that people (especially expats) who intend to acquire a long-term visa in UAE can do so by setting up a business.
It is suggested that people should not consider investing or set up a business in UAE just to have a long-term visa. Yes, there are benefits of having a long-term visa in the UAE, but people should also remember that it comes at a hefty price.
That being said, we hope that you were able to find this information useful in knowing the details related to corporate taxes, individual taxes, long-term visa rules, and some other aspects of establishing a business and becoming an entrepreneur in the UAE.
If you need a professional wealth manager or investment planner to take care of your investments on your behalf, you can benefit from the best-in-class financial solutions offered by us.
Is the UAE the best option for wealthy digital nomads and expats?
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