Lowtax Review – Dubai and Ras Al Khaimah
Sponsored by Charterhouse
Petroleum has traditionally dominated the economy of the
UAE. At one time an underdeveloped area, by 1985 the region
had the highest per capita income in the world. This immense
wealth has been invested in huge infrastructure projects in
all seven of the emirates. It has also allowed the government
to keep taxes low (in most cases, practically non-existent)
which has attracted thousands of corporate investors and millions
of foreign workers and investors into the country, resulting
in some of the highest pre-crisis economic growth rates anywhere
in the world.
production is centred in Abu Dhabi and Dubai. Ras Al Khaimah
is the industrial heart of the UAE, and it also has a small
but rapidly-growing offshore centre which serves as a conduit
for investment in the emirate’s industrial zone, and
as a vehicle for tax minimisation for businesses and investors
with operations in one or more high-tax countries. ‘Offshore’
activities in Dubai are centred on the Jebel Ali Free Zone
and the Dubai International Financial Centre, which are explained
in more detail later in this feature, although there are a
number of other free zones catering to business in specific
sectors, the Dubai Internet City being a notable example.
Banking facilities throughout the UAE are well-developed;
indeed, it can be said that the country is somewhat overbanked.
At the end of 2010 there were 867 domestic banks, including
732 branches, 23 head offices, 86 pay offices, and 26 electronic
banking services units; and 162 foreign banks including 83
branches and 28 head offices.
There are no elections or legal political parties in the
UAE. Power rests with the seven hereditary sheikhs -- also
known as emirs, and hence the area ruled by an emir is known
as an emirate -- who control the seven traditional sheikhdoms
(Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Qaiwain, Ras Al
Khaimah and Fujairah -- each emirate being named after its
principal town) and choose a president from among themselves.
The emirate of Dubai extends along the Arabian Gulf coast
of the UAE for approximately 72 kilometres and constitutes
just 5% of the UAE’s total area. Dubai city is built
along the edge of a narrow 10-kilometre long, winding creek.
The scale of capital investment in Dubai over the past two
decades has been truly staggering and Dubai city, once a small
fishing town, now rises out the desert like an Arabian Manhattan.
Dubai’s port is one of the largest and busiest in the
region, and more than USD30bn is being pumped into a new international
airport, named the Al Maktoum International Airport after
the emirate’s ruling dynasty, which, when fully operational,
will have six runways and as many concourses.
Ras Al Kaimah is the northern-most of the emirates in the
UAE, bordering Oman to the north and east. Its coastline runs
for 65 kilometers along the eastern end of the Arabian Gulf
and it is the fourth-largest emirate. It is less developed
than Dubai, but nevertheless benefits from good transport
infrastructure and has its own well-connected airport close
to Ras Al Kaimah town, the major population centre, which
is also a short drive (30 to 40 minutes) from Sharjah and
A lack of trained personnel has resulted in a huge influx
of expatriate workers to Dubai and to a lesser extent to Ras
Al Khaimah; of the almost 2m people currently living in Dubai,
only 22% are ethnically emirati in a population mixture that
has to be one of the world’s most cosmopolitan. The
number of expats among the 240,000 people who live in Ras
Al Khaimah is lower, but is still about half of the emirate’s
population. While there is a considerable population of non-resident
Indians in Dubai, the, emirate has also attracted large numbers
of highly-skilled people from Europe and North America, lured
there by high pay, low (or no) taxes, and year-round sun and
warmth. And it is to the emirates’ major tax advantages
that we now turn.
Tax (or Lack of It)
The UAE’s enormous oil revenues mean that the government,
at national and local level, has no need to raise income through
direct taxation. Accordingly Dubai and Ras Al Khaimas are
"no tax" emirates characterized by an almost complete
absence of taxation. There are no withholding or capital taxes,
although business properties in Dubai pay a municipal tax
set at 10% of annual rental value.
With the exception of banks and oil companies no corporate
income tax is payable by businesses in the UAE. Oil companies
pay up to 55% tax on UAE-sourced taxable income whereas banks
pay 20% tax on taxable income. The taxable income of banks
is based on audited financial statements whereas that of oil
companies is according to their concession agreements. Oil
companies also pay royalties on production.
Double taxation treaties (negotiated and signed by the federal
government) are in place aimed at making the emirates a more
attractive territory in which to operate by reducing taxation
levied in foreign jurisdictions on profits remitted abroad
by foreign corporations operating locally. The extensive and
growing list of treaties currently numbers 52 countries, including
China, France, Germany, India, Indonesia, Italy, Luxembourg,
Malta, Malaysia, the Netherlands, Singapore and South Korea.
Under these treaties profits derived from shares, dividends,
interest, royalties and fees are taxable only in the contracting
state where the income is earned. Although corporate income
tax is not levied in the UAE the provisions of the treaties
do not state that such income must be taxed to qualify for
benefits. Thus dividend income paid by a UAE company to a
company which has a double taxation treaty with UAE may not
be taxable in the hands of the foreign parent corporation.
However it is wise to study the text of the treaties themselves
before assuming anything about the tax treatment of untaxed
income flows originating in Dubai.
Value-added tax (VAT) has been discussed for a number of
years in the UAE, and is likely to be introduced sooner or
later in unison with the other members of the Gulf Cooperation
Council (CGG). The introduction of a sales tax had been discussed
in Dubai for a number of years, but it is becoming apparent
that the GCC member states want to roll out VAT simultaneously
to replace revenues derived from trade taxes, which are due
to be phased out as a number of free trade agreements are
signed by the GCC. A timeframe of 2012 to 2015 has been tentatively
proposed for the imposition of VAT, but there is currently
no consensus on an implementation date.
There are no personal income taxes in either emirate.
Despite calls from the likes of the International Monetary
Fund for the UAE to think about imposing new taxes to compensate
for falling revenues from oil wealth, which will inevitably
begin to run dry at some point in the future, the region appears
to be sticking to its low tax path and both emirates will
at least remain free from income taxes for non-oil firms and
individuals for the foreseeable future. Companies
established in the emirates’ free zones in any case
have legal guarantees that they will not be taxed for many
years. And it is the major free zones in Dubai and Ras Al
Khaimah which we will now explore.
Jebel Ali Free Zone (JAFZ)
The JAFZ, located in Dubai, was established in 1985 and spreads
over an area of 48 square kilometres. Home to over 6,400 companies,
including over 120 Fortune Global 500 enterprises, it is one
of the world’s largest and fastest-growing free zones.
The JAFZ was set up with the specific purpose of facilitating
investment. Accordingly, the procedures for setting up in
the zone are relatively simple. Its legal status is quite
distinct: companies operating there are treated as being "offshore",
or outside the UAE for legal purposes.
The option of setting up in Jebel Ali is therefore most suitable
for companies intending to use Dubai as a regional manufacturing
or distribution base and where most or all of their turnover
is going to be outside the UAE.
There is freedom from corporate taxation for a period of
50 years, a concession which is renewable. In addition, there
are no import or re-export duties, no personal income taxes,
no currency restrictions, and no restriction on hiring foreign
employees. 100% foreign ownership is permitted and there is
exemption from all import duties, plus 100% repatriation of
capital and profits is guaranteed.
A Free Zone Establishment - or FZE - is an establishment
formed and registered in Jebel Ali and regulated solely by
the Free Zone Authority. Such establishments must have a capital
of at least AED 1m and liability will be limited to the amount
of paid-up capital. A FZE need only have a single shareholder
and is an independent legal entity.
Companies approved for operation in Jebel Ali Free Zone are
granted one of the following types of licences, renewable
annually for as long as the company holds a valid lease from
the Free Zone Authority (Jafza):
- A General Trading Licence allows the holder to import,
distribute and store all items as per Jafza rules and regulations.
- A Trading Licence allows the holder to import, export,
distribute and store items specified on the licence.
- An Industrial Licence allows the holder to import raw
materials, carry out the manufacture of specified products
and export the finished product to any country.
- A Service Licence allows the holder to carry out the services
specified in the licence within the Free Zone. The type
of service must conform to the parent company's licence,
issued by the Economic Department or Municipality of the
relevant Emirate in the UAE.
- A National Industrial Licence is designed for manufacturing
companies with an ownership or shareholding of at least
51% in GCC hands.
The Free Zone and Dubai Ports Authority (DPA) are inextricably
linked; they are led by one chairman and share a strong, symbiotic
relationship. The Free Zone is built around the DPA's Jebel
Ali terminal, enabling customers to take full advantage of
the port's ISO-certified container and general cargo operations.
Specialized unloading facilities and purpose-built storage
such as the cool and cold stores are also at the disposal
of Free Zone companies. Jebel Ali terminal offers efficient
cargo handling, and with rates among the lowest in the world,
the prospect for exporting is good.
Dubai International Financial Centre
During 2002, the Dubai authorities developed plans for the
Dubai International Financial Centre (DIFC), which was launched
in 2003 and began operations in late 2004. The UAE Federal
Cabinet approved a Federal Decree allowing the DIFC a large
degree of sovereignty in July 2003, and a year later the ruler
of Dubai guaranteed the legal independence of the DIFC, signing
a decree officially establishing the DIFC in September 2004.
With DIFC companies enjoying the same tax benefits as other
free zone firms in Dubai, the Centre has grown rapidly since
its birth almost ten years ago and is now considered the pre-eminent
financial centre between the European and Asian time zones.
A total of 64 companies joined DIFC in the first six months
of 2011, bringing the number of active registered companies
operating in the Centre up to 813. 44% of new regulated companies
in the first half of 2011 came from the Middle East and Asia,
50% from Europe and North America, and 6% from the rest of
Commenting on these figures, Abdulla Mohammed Al Awar, Chief
Executive of the DIFC Authority, said: “In 2010, DIFC
focused on developing and implementing its new business strategy
which centred on growing our existing client partnerships.
We have successfully carried this through into 2011 and have
seen the evolution of DIFC continue, adapting to the rapidly-changing
environment around us. The outlook for economic growth in
the region continues to be strong due to the long-term fundamentals,
particularly its abundance of natural resources and youthful
populations, as well as the benefits of economic integration
through the GCC Common Market and larger Free Trade Area.
DIFC, with its modern infrastructure, free zone status and
self-governing laws and courts, is uniquely positioned to
support this growth in the region and to continue to be a
major contributor to the UAE and wider region economies.”
Marwan Ahmad Lutfi, Deputy Chief Executive and Managing Director
of Business Development and Services added: ?“2011 marked
the beginning of a new phase in DIFC’s development as
one of the leading global financial centres. We are focused
on expanding our existing client partnerships and on attracting
new players to drive the development of the financial services
market in the region. This has translated in the number of
existing clients expanding their presence in the Centre, and
the strong pipeline of companies and applications currently
Asset management companies, banks, and other financial service
providers which establish headquarters in the Dubai International
Financial Centre (DIFC) are permitted to do business with
locally-based high net worth individuals but are not allowed
to enter into the retail market in Dubai.
The DIFC has a separate set of laws called the Commercial
Code, comprising a comprehensive set of regulations such as
company law, legislation on property rights, including laws
on security and collateral, title to goods and securities,
commercial transactions and contracts, and insolvency.
As the regulatory authority (the Dubai Financial Services
Authority) is a 'one-stop for everything' regulator; financial
institutions are granted an umbrella licence covering all
services, but with separate permissions for discrete activities
such as wholesale banking, asset management, insurance, re-insurance,
securities underwriting, broking, dealing, corporate finance
advice, investment advice, derivatives trading, etc.
Dubai Internet City
In February 2000, Dubai's then ruler Sheikh Maktoum bin Rashid
Al Maktoum issued a decree setting up a free-trade zone for
electronic commerce and technology.
The decree established an independent body, the free zone
authority headed by Crown Prince Sheikh Mohammed bin Rashid
Al Maktoum, which would operate under the Dubai government
to spearhead the emirate's drive to become a regional centre
for electronic commerce, technology and information.
In September 2000 Dubai officials announced that more than
a hundred information technology companies had been granted
licences to operate in the City. The companies, which included
industry giants Microsoft, Oracle and Compaq, invested USD250
million in the technology, e-commerce and media free zone,
according to DIC director-general Mohammed Al Gergawi. Another
350 firms were awaiting approval, he said. By mid-2004, the
number of companies operating out of the DIC had risen to
more than 500. This number had risen to almost 1,000 by October
2007, when the DIC notched up its seventh-year of operation.
A further 150 companies set up operations in the DIC in 2010,
including Cable and Wireless Europe, ADP Dealer Services Gulf,
Pitney Bowes Software, China Communication Service, and Versata.
Currently, more than 25,000 ICT professionals are employed
within DIC as part of technical teams and support staff.
The free zone authority oversees the establishment of the
necessary infrastructure at the zone, licenses companies wishing
to set up shop there and leases land and property to them
for up to 50 years. The authority also runs the zone, and
levies fees for its services.
Companies are allowed 100% foreign ownership in the zone,
while goods imported to the zone and products for export are
exempt from custom duties and companies are exempt from taxes,
including income tax. In line with Dubai’s liberal economic
policies, the DIC regulations also provide for 100% repatriation
of capital and profits, easy registration and licensing, stringent
cyber regulations and protection of intellectual property;
there are no currency restrictions,
Companies can choose to incorporate in one of three ways:
- Branch of Foreign Company;
- Branch of UAE-based Company (including other UAE Free
- Free Zone Limited Liability Company (FZ LLC).
Submission of the License application form can be done electronically
through the Dubai Internet City site.
Ras Al Khaimah Free Trade Zone (RAK FTZ)
As the industrial heart of the UAE, the RAK FTZ, established
in 2000, is home to a number of manufacturing concerns, including
the largest pharmaceutical manufacturer in the UAE. Glass
and steel making are also important industries. However, the
RAK FTZ also welcomes investment from ‘clean’
industries, e-commerce firms and educational institutions.
The zone is divided into five ‘parks,’ located
in various parts of the emirate. These include the Industrial
Park, Business Park, Technology Park, Aviation Park and Academy
As well as heavy industry, the Industrial Park also contains
extensive warehouse space in units sized from 150 square meters
up to 500 square meters which are suitable for light manufacturing
and assembly, as well as for storage. The industrial zone
is under constant expansion, and a much larger industrial
area, known as the Al Ghayl Industrial Park is being developed
for heavy industry and currently covers 223 hectares.
The Business Park is located in the centre of Ras Al Khaimah
city and provides modern office facilities equipped with power,
phone, internet and fax access, air conditioning, housekeeping
services, 24 hour security and private postal address. Rental
costs start at AED1,200 per square meter per year, and may
include electricity costs. Lease terms are for one year and
are renewable annually. A full year’s rent must be paid
at the time of registering the company.
The 100 hectare Technology Park is situated to the south
of Ras Al Kahimah city, close to Dubai in an area that is
seeing rapid growth in light industry and of automated manufacturing
The 75,000 square meter Aviation Park is located at Ras Al
Khaimah International Airport and specializes in maintenance,
repair and overhaul operations.
The Academy Zone is a dedicated facility from which educational
organisations can offer academic programmes to the community
of Ras Al Khaimah. Educational organisations can either manage
their operations at an allocated building or build their own
campuses at an assigned location in Ras Al Khaimah.
Branches of foreign universities may operate in the Academy
Zone. Other authorized activities include the provision of
infrastructure and facilities to educational institutions,
in-house training activities and distance learning. Student
visas are available for university students. These last for
18 months and are applicable to students aged from 18 to 21.
Defying the challenging economic environment, the RAK FTZ
continued to achieve steady growth during 2010 – its
10th year in operation. The RAK FTZ registered 1,740 new free
zone companies during the year, while its International Companies
(IC) division registered a record number of 1,499, a 14.65%
increase in the total number of registrations compared to
2009. Licence renewals also achieved significant growth of
16.49% in 2010, with 3,271 companies renewing their business
licences, reinforcing the free zone’s reputation as
one of the most attractive investment zones in the Middle
East. As of the end of 2010, the total number of actively
operational registered companies in RAK FTZ stood at over
A total of 1,509 companies registered in the period January-September
2011, compared to 1,173 companies registered in the same period
in the previous year - a 28.65% year-on-year increase. Licence
renewals also showed impressive growth – with 828 licences
renewed between July and September 2011, compared to 753 renewals
in the same period in 2010.
The vast majority of the new companies originate from UAE
and India, with other new registrants originating from Afghanistan,
France, the Netherlands and Pakistan. Together with new registrations,
the total number of registered companies operational at RAK
FTZ by the end of Q3 2011 is well over 5,000.
Commenting on these numbers, Oussama El Omari, RAK FTZ CEO,
said: “The tremendous increase in new registrations
and licence renewals in the third quarter of 2011 reflects
investor confidence in our business model. We have always
believed in offering a transparent and open door investor-friendly
environment at RAK FTZ and this has helped us build our reputation
as one of the most attractive investment zones in the region.”
He added: “The fact that this achievement came amidst
a volatile business atmosphere, and covered the traditionally
slow summer months, is even more commendable. We are looking
ahead confidently to achieve record growth in our registrations
by the end of this year. More importantly, we are thrilled
and privileged to be playing a pivotal role in contributing
to the economic growth of the emirate, and the UAE as a whole.”
Free Zone Licensees are not permitted to display or sell
their products or services themselves directly in the local
market. However, the holder is permitted to operate outside
the UAE. Retail trading is not allowed inside the Free Zone
A Free Zone Company (FZCO) is a limited liability company
incorporated with the RAK Investment Authority, by more than
one shareholder. The capital requirement for setting up an
FZCO in the RAK Investment Authority Free Zone is AED250,000.
A Free Zone Establishment (FZE) is 100 per cent owned by
either a person or a corporate body. It enjoys the status
of a separate legal entity. The capital requirement for setting
up a FZE in the RAK Investment Authority Free Zone is AED150,000.
Local or UAE Branch Licences are issued to companies holding
a valid licence from any UAE licencing authority except from
other free zones.
Foreign Branch Licences are issued to companies outside the
UAE seeking to open a branch in the RAK Investment Authority
Free Zone. The ownership of the company must be 100% foreign
and sales can be made through a UAE-registered agent or a
distributor only. The activity may be industrial, commercial
RAK Free Zone companies must obtain one of the following
types of licences:
- An Industrial Licence allows the holder to import
raw materials in addition to manufacturing, processing, assembling,
packaging, and exporting finished products.
- A Commercial Licence allows the import, export, distribution,
consolidation, storage or warehousing of items specified in
- A Consulting and Services Licence allows the holder
to offer consulting services in management, finance, investment,
legal issues, labour relations, economics (including feasibility
studies), industrial development, marketing, and related subjects.
Other services include logistical support such as: restaurants
or food outlets, catering services, travel agencies, leisure
and social activities, insurance, cargo and freight forwarding,
accounting, and audition services.
- A Commercial – General Trading Licence can be
obtained under a Commercial License, which allows for more
than seven product lines.
Employment and Residence in Ras Al Khaimah
There are no restrictions on the employment of foreign nationals
in Ras Al Kaimah, although the UAE authorities are keen to
see more local participation in the workforce through a policy
of emiritisation. The easiest and fastest way to set up a
new business in the UAE is through a free trade zone. Otherwise,
it is a mandatory requirement to register a new company’s
name with the Immigration Department and the Ministry of Labour
and Social Affairs. Since most companies recruit their employees
from abroad, they need to register a file at the Ministry
of Labour and Social Affairs and Immigration Department once
they have received their trade licence.
RAK Free Trade Zone provides visa sponsorship to licensed
clients so they can operate a business in the UAE. The
number of visas that can be issued to a company is dependent
on the scale of operation, type and size of facility, type
of licence and activity undertaken. Commercial and Consultancy
Licences can apply for up to four visas. For Industrial Licences,
the number of visas is to be decided as per project requirements.
There are four different types of visas for which RAK FTZ
clients can apply, depending upon their individual requirements
and eligibility criteria, as follows:
- Investors or Partner Employment Visa: This is issued
to a RAK FTZ Establishment owner (Investor Visa) or to a shareholder
/ partner in a RAK Free Zone Company where the value of shares
held by the applicant is not less than AED 50,000 (Partner
Visa). This type of visa is normally valid for three years;
the visa holder is not allowed to stay outside the UAE for
more than six consecutive months. Investors / shareholders
/ partners who wish to sponsor their families need to have
a minimum shareholding of AED 75,000. There is no upper age
limit stipulated for Investor or Partner Visa applicants.
- Manager Employment Visa: This visa is issued to managers
or employees of companies established at RAK FTZ, falling
within the age group of 20 - 60 years. This type of visa is
normally valid for three years, but the visa holder must not
stay outside the UAE for more than six consecutive months.
- Family Visa: Males already holding Employment Visas
issued by RAK FTZ may apply for Family Visas to sponsor their
dependents. This type of visa is normally valid for three
- Visit Visa: This is a permit to enter the UAE for
short periods of time and is either valid for 30 days or for
90 days, depending on the visa type applied for.
Property Holding Companies
It may not have been the original intention of Dubai's rulers
to create a major international real estate centre; but it
happened to them nonetheless, originally because of the need
to provide accommodation for the swelling numbers of expatriate
workers sucked in by the infrastructure construction programs.
Eventually the real estate sector took on a life of its own,
and the financial problems which now beset the Emirate can
be traced to this cause. Nonetheless, despite the gloomy economic
outlook in Europe and the United States, the Dubai economy
is expected to have grown by as much as 5% in 2011, and despite
depressed prices, there could be long-term demand for real
estate from the expat community, especially now that foreigners
can buy freehold property in certain situations.
Buying property in Dubai is a relatively straightforward
business, and there are many estate agencies and consultancy
services catering for international buyers such as expats,
those in search of a second home and investors hoping to earn
rental income and/or capital appreciation. However, there
are legal and geographical limitations on the ability of foreigners
to own freehold property in Dubai. In March 2006, a long-awaited
Dubai property law was issued, but Law No.7 of 2006 stipulated
that freehold is limited to UAE and GCC citizens and companies
wholly owned by them, as well as public shareholding companies.
The law also stipulated that upon approval of Dubai's ruler,
non-UAE nationals may be given the right to own properties
in some parts of Dubai.
The legislation identifies freehold, usufruct, and commonhold
as types of property ownership. The law characterises 'usufruct'
as the right to use another's property for not less than five
years and not more than 99 years.
The law calls for the establishment of a real estate register
at the Dubai Land and Properties Department. Expatriates who
have already bought properties are able to register their
titles with the Dubai Lands and Properties Department.
Law No 7 of 2006 doesn't provide for 'floating freeholds',
and it appears that in practice foreigners are limited to
buying whole developments in the nominated areas. While this
may be a disappointment for individual expatriates, it may
still encourage further foreign investment into development
Expats also have the option of buying
into real estate in Dubai through an offshore holding company,
and this is especially advantageous in terms of estate planning
because a jointly-owned property may not automatically pass
to the surviving spouse after one of the joint owners dies
as it would under most common law and civil law legal systems.
Seeking advice from an impartial local expert is, of course,
essential for expats, most of whom will be unfamiliar with
the UAE’s laws and practices.
In August 2006, the Dubai International Financial Centre
Authority (DIFCA) published draft legislation that would allow
foreign freehold ownership of property in the DIFC. The laws
included the DIFC Real Property Law 2006 and the Strata Title
Law 2006. These laws, enacted in June 2007, allow for foreign
companies and individuals to hold freehold ownership of real
estate within the Dubai International Financial Centre.
Dubai has all the attributes and more of a modern, sophisticated
financial centre; combined with the emirate’s mineral
wealth, the government’s liberal attitude to business
and readiness to invest heavily in essential infrastructure,
the almost complete absence of the taxes, and its location
at the cross-roads of Europe, Africa and Asia, Dubai has become
the most attractive and dynamic ‘offshore’ jurisdiction
in the region, if not globally. Although Dubai suffered an
economic setback at the start of the financial crisis, the
continuing growth of its free zones and its emergence as the
wealth management centre for the largely untapped wealth of
the Middle East shows that its foundations remain strong.
While Ras Al Khaimah may not have the same resources at its
disposal as its ‘noisy neighbour’, as a ‘no
tax’ emirate with a similarly business-friendly administration,
it is beginning to attract significant interest from international
investors, particularly in high-tech and services-based industries.
The rapid growth of the recently-launched offshore company
facility, which appeals to investors wanting strong confidentiality
protections in addition to low taxes, could well eclipse the
more traditional offshore jurisdictions in the not-too-distant