DUBAI: SPECIAL FEATURE - RAS AL KHAIMAH

IS RAK OFFSHORE THE NEW BVI?

Contributed by: Michael Davies, Freemont Group
www.freemontgroup.com
dubai@freemontgroup.com

Introduction

“The government of Ras Al Khaimah has launched an offshore facility, the second in the UAE, that is expected to lure investors looking for a new tax haven.

The initiative, called "International Companies Registry", will allow foreign investors to register offshore companies in the Ras Al Khaimah Free Trade Zone (RAK FTZ) without the need to establish a physical presence, the zone's chairman Shaikh Faisal Bin Saqr Al Qasimi said yesterday.

Ras Al Khaimah officials hope foreign companies will find their offshore system more appealing than the Jebel Ali Offshore centre, which was established by Dubai in 2003 to position itself as a tax haven like the Cayman Islands, Bahamas and Liechtenstein.

RAK FTZ chief executive officer Osama Al Omari said "thousands of companies" have expressed interest in joining the offshore zone.”

Brave words reported in Gulf Times in 2006 upon this announcement? Even more brave were they to be uttered during the current financial crisis? It appears not.

Gulf News and Khaleej Times have frequently reported on the rapid development of Ras Al Khaimah free zone. It is recognized that in terms of free zone incorporations it is one of the fastest growing emirates in the UAE.

Recently Gulf News reported that Ras Al Khaimah Free Trade Zone (RAK FTZ) reported a 16 per cent increase in revenues in the first quarter of 2009, compared to the first quarter of last year.

Despite the ongoing economic crunch, RAK FTZ, one of the fastest-growing free trade zones globally, reflected a four per cent increase in company registrations compared to the same period in 2008.

The free zone has continued to attract new businesses in industries spanning IT, Consulting, Manufacturing and Trading. RAK FTZ is recognised not only regionally but globally, as offering strategic and cost-effective solutions to companies that strive to reach international markets.

Topping the list are Asian companies with 32 per cent of total registrations, followed by European Union at 24 per cent, Middle East with 18 per cent, Other European countries with 8 per cent and 3 per cent from the United States of America. Today, RAK FTZ contributes an estimated capital of Dh 10 billion to Ras Al Khaimah’s economy. Future investments of Dh 7.3 billion are also underway or being planned, to ensure continued growth.

RAK FTZ ranks 17th among the Top 100 Special Economic Zones of the future, according to a recently published report on ‘Middle East Cities and Special Economic Zones of the Future 2008/2009’ by FDI Magazine of The Financial Times Business Group.

Ras Al Khaimah has rapidly  gained a reputation for being a transparent, tax-free, corruption-free and no-red-tape location to do business. Its booming economy and proximity to other major international centres like Dubai has attracted hundreds of large, medium and small businesses from every part of the world.

Now, Ras Al Khamiah has added to its free zone portfolio by enabling the formation of offshore companies and combined this with a rapidly expanding list of Double Tax Avoidance Agreements, including many major jurisdictions (see Appendix 2).

Some basics to be reminded of

An offshore company is a company which is incorporated outside the jurisdiction of its primary operations.

An Offshore company is a very flexible corporate entity commonly used in international tax planning, and can be used in a wide variety of international business structures. Tax optimization, asset protection and confidentially are often the drivers behind such formations.

There is no generic reply as to which is the best offshore jurisdiction and a review of LowTax.net will clearly show  that the options can be considerable and often difficult to differentiate between in any substantial manner. It would be naïve to suggest that factors such as tax and confidentiality do not weigh heavily in the balance.

There are a number of business activities which are suited to be operated through an offshore company, these include:

- General Trading
- Consulting and Advisory Services
- Holding Company (buy/hold/sell stakes of companies)
- Investments and Joint Investments Company
- Property Owning
- Management Services
- Shipping
- Brokerage

With this need of the international client in mind Ras Al Khaimah (RAK) has launched its offshore company service.

The International Business Companies (IBC) Registry allows foreign investors to register offshore companies without the need to establish a physical presence in the UAE.

So what does RAK offer that others may not?

• Simple incorporation and filing requirements
• The availability of Double Taxation Avoidance Agreement (DTAA)
• International standard banking system
• Arguably unrivalled telecommunication facilities

Other jurisdictions list the above. However, in addition, and something which adds substantially to this list, is the fact that the UAE is not a dependent or 'overseas' territory of another country. As any regular reader of the offshore industry press and LowTax.net will be aware, there is growing pressure on traditional low tax jurisdictions by the EU and OECD. The signing of Tax Information Exchange Agreements has also become the rage, much to the consternation of many a client and service provider. The UAE is not expected to bow to pressure to sign agreements of such scope, while still retaining a regulatory approach that protects its international reputation. In addition to the existence of the DTAAs, the UAE is obviously not an EU or OECD member, so not subject to internal directives and regulation that goes with such membership, it has no exchange of information agreements in place, but is also not on the OECD or FATF “blacklists”.

Main activities of a UAE Offshore Company

• General Trading
• Consulting and Advisory Services
• Holding Company (Buy/Hold/Sell stakes of companies)
• Investments and Joint Investments Company
• Property Owning
• International services
• Professional Services
• Shipping and ship management companies
• Commission Agents Company – Intermediary Brokers (IB’s)

Fiscal & Regulatory benefits of a UAE Offshore Company

• 100% income tax exemption
• 100% corporate tax exemption
• 100% capital and profit repatriation
• 100% ownership in Free Zones
• No Import or Export taxes
• No capital gains tax
• No Value-added tax
• No Withholding tax
• Access to regional and world markets

Main features of a UAE Offshore Company

• It does not need to have physical offices in the UAE.
• It may not carry on business within the UAE.
• It may not obtain UAE Residency Visa.
• It may have non UAE resident as director or shareholder.
• It may have UAE resident as director or shareholder.
• It may have corporate shareholder/corporate director
• It does not require the shareholder/director to be physically present in the UAE for incorporation
• It may own real estate in the UAE, with prior authorization from RAK Investment Authority.
• It may not do banking and insurance business without special license.
• It may maintain bank accounts and deposits in the UAE or worldwide.
• It is not obliged to maintain books and records.
• It may hold shares in other UAE and worldwide companies.

A light regulatory touch, but an effective one

Day-to-day operations of offshore companies  are managed by the Registrar, under the control of the RAK Investment Authority (RAKIA), and the independent and dedicated RAK Financial Services Authority (RAKFSA), as well as the Central Bank of the United Arab Emirates. In delivering its functions and in considering applications by organisations and individuals wishing to establish businesses within or through Registered Agents, the Registrar and RAKFSA has a stated aim to adopt a firm but flexible regulatory approach.

It is of paramount concern to the government that Ras Al Khaimah’s reputation is not tainted by the use of the jurisdiction for money laundering or other illegal purposes. Therefore, any RAK licensed Registered Agent is expected, in accordance with a set of strict guidelines, to carry out proper due diligence and “know your customer” checks so that we are satisfied as to the identity of the clients and the legitimate origin of the clients and their funds. Although total confidentiality is ensured by the legislation, the authorities will cooperate with law enforcement agencies and regulators in case of illegality.

So is it the new BVI?

Not yet, is the simple answer. Nevertheless the fact that it is now a regional powerhouse in terms of offshore companies is unlikely to remain at this level if the statistics of the free zone company expansion into the Asian, European and Russian markets referred to in the introduction are repeated at the offshore level. There is certainly a distinct possibility that service providers, confronted by nervous clients reading of new pacts between taxing authorities, want to return in a sense to the “old days” when pressures were few, incorporation was simple and uses flexible. It looks as though those days may be returning.

Appendix 1

Formation Procedure

In order to set up a UAE Offshore company the applicant must contact us. A Registered Agent of the Government Authorities will be responsible for submitting the incorporation documents to the Registrar. The applicant does not need to be physically present for the incorporation.

Set up time: 24 hours.

a) Application/Request Form
b) Documents (see below)
c) Payment

• Individual Shareholder and Individual Director

-- Request Form (in original);
-- Passport Copy of each director and shareholder;
-- Bank Reference Letter (in original) of each director and shareholder;
-- Utility Bill/Proof of Residence (in original) of each director and shareholder.

• Individual Shareholder and Corporate Director

-- Request Form (in original);

-- For Individual Shareholder:

a) Copy of each individual shareholder;
b) Bank Reference Letter (in original) of each individual shareholder;
c) Utility Bill/Proof of Residence (in original) of each individual shareholder;

-- For Corporate Director:

a) Board Resolution regarding acceptance to act as a director of the new company (in original);
b) Copy of License or Incorporation Certificate of the parental company issued by the Chamber of Commerce or any other body;
c) MOA of the parental company (copy);
d) Passport copy of the directors and shareholders;
e) Bank Reference Letters (in original) for the directors and shareholders.

• Individual Director and Corporate Shareholder

-- Request Form (in original);

-- For Individual Director:

a) Passport Copy of each individual director;
b) Bank Reference Letter (in original) of each individual director;
c) Utility Bill/Proof of Residence (in original)of each individual director;

-- For Corporate Shareholder:

a) Board Resolution from the parental company in its letterhead for appointment of shareholders and directors (in original);
b) Copy of License or Incorporation
c) Certificate of the parental company issued by the Chamber of Commerce or any other official body;
d) MOA of the parental company (copy);
e) Passport copy of the directors and shareholders;
f) Bank Reference Letters (in original) for the directors and shareholders;

• Corporate Director and Corporate Shareholder

-- Request Form (in original);

-- Board Resolution from the parent company in its letterhead for appointment of shareholders and directors respectively (in original);
-- Board Resolution regarding acceptance to act as a director of the new company (in original);
-- Copy of License or Incorporation Certificate of the parental company issued by the Chamber of Commerce or any other body;
-- MOA of the parent company (copy);
-- Passport copy of the directors and shareholders;

-- Bank Reference Letters (in original) for the directors and shareholders

Appendix 2

Double Taxation Avoidance Agreement

List of Double Taxation Avoidance Agreements: