How to Start a Company in the UAE to Save Tax?
Contributed by Aurion
12 February, 2020
The Company Setup in the UAE is tailormade to suit the investor requirement of saving Tax. UAE levy fewer taxes from the residents and foreign investors.
UAE has mainly two business jurisdictions for the Company Setup - The Mainland and the Free Zone. It is governed by different business laws and levies certain taxes accordingly.
There are only very few Taxes levied in the UAE, which is the Value-Added-Tax (5%), the Excise Tax for certain commodities (Tobacco, Energy Drinks, etc.), and the Tourism and Municipality Tax for Hotels. UAE also has a Corporate Tax only for Foreign Banks and Oil Companies.
UAE is free from Income Tax, Tax on Capital gains as well as Profits, Inheritance Tax, Tax on income from the property sale, etc. The tax-free environment for businesses is luring investors to start a company in the UAE.
Key Factors Driving Investors to Set up Company in the UAE
1. Ease of Business Setup and World-Class Infrastructure
UAE has many prospective offers to attract investors and its one of the most established commercial and business hub of the Middle East
The government support, business and tech infrastructure, banking services, financial structure, innovation, access to the global market, etc. are various factors that are attracting the investors to this region.
2. Free Trade and Tax Saving Agreements with Other Countries
UAE has a very low taxation rate, and the investors can enjoy the benefits of tax savings while conducting business operations locally as well as internationally due to the tax-saving agreements of UAE with other countries.
The Free Trade Agreements with multiple countries and waiver in Customs Duty fee for Free Zone companies are making UAE a perfect trading destination for international investors.
Also, by virtue of the UAE's location between the east and the west of the world, it acts as a perfect logistics hub to facilitate international trade.
3. Double Taxation Agreement Treaty
UAE has 94 agreements in place with other nations to avoid double taxation on overseas investments.
The Double Taxation Agreement is to promote cross-border trade and investment flows.
It also protects taxpayers from double taxation and invites more investors to choose UAE for setting up their business and enjoy the tax benefits.
Companies and High-net-worth individuals residing in the UAE can apply for the Tax Residency Certificate and claim the benefits of the Double Taxation Avoidance Agreement (DTAA).
To find out more, Read: Tax Residency (Domicile) Certificate in UAE
4. Niche Market Trends
The liberal policies across the majority of industries will drive in more investors to the UAE. The Import export market significantly contributes to the income growth of the UAE.
UAE has many enterprise-friendly measures like 100% foreign ownership, 100% profit repatriation, world-class infrastructure, ease of business setup, Tax benefits, and so on.
Taxation - Mainland and Free ZoneTaxation in UAE Mainland
Based on business jurisdiction, the companies in the UAE will be subjected to certain taxes.
The UAE mainland companies are mainly subject to two taxations i.e., Customs Tax and Municipality tax.
Excise tax is levied on certain commodities in sale in the UAE, and also the Corporate Tax for Oil Companies and Foreign Banks operating in the UAE.
1. Customs Taxes
There is a 5% import duty for mainland companies. However, there are exemptions for certain sectors like food supplies, building materials, medical products, items destined for the free zone, etc.
2. Municipality Taxes
The restaurants, hotels, hotel apartments, resorts, etc., in the UAE, will be charging a 10% Municipality Fees along with certain tourism-related taxes such as Service Tax, Tax on room rate, city tax, and tourism fee.
3. Corporate Tax
The UAE levies Corporate Tax on oil companies and foreign banks only. There is no Corporate Tax for service or trading companies in the UAE.
4. Excise Tax in UAE
The Excise Tax is charged in the UAE for certain products considered to be unhealthy such as tobacco, alcohol, confectionery, soft drinks, and fast food.
Excise Taxes for carbonated drinks are 50%, for tobacco products are 100%, and for energy drinks, it is 100%.
Taxation in UAE Free Zone
For Free Zone Companies, there are a couple of financial benefits for foreign investors:
- 100% Foreign Ownership with 100% Profit Repatriation
- No Corporate Taxes for 50 years
- No Personal Income Taxes
- Exemptions from Custom Duties
- Easy Global Trade
Business Setup in Dubai
As UAE is a tax haven, investors are looking at suitable company formation packages based on the specific requirements. Business Setup in Dubai is a straight forward process, although it involved some paperwork and approvals.
An experienced business consultant will be apt to guide you through the entire process and help you to get your business license at the earliest using a streamlined approach.
Benefits of a Mainland Company in UAE
Mainland business entities have a wide range selection of business activities to be included in their license.
Ability to expand the business presence by trading in a wide range of products and easily venture into new products & industries
Build a strong presence in the UAE by setting up offices and branches anywhere in the UAE.
Trade in the local market without paying any customs duty as well expand trade to the rest of GCC markets easily.
Mainland companies can easily pitch for government contracts and projects. They can work with UAE government bodies.
Comparatively less rent than free zone offices as more flexibility to choose a location, fewer maintenance requirements.
Ease of bank account opening as limited liability companies is rated with low risk by most of the UAE local banks.
Benefits of a Free Zone Company in UAE
Free Zone Business Benefits
- 100% tax exemption on personal or corporate income or gains
- 100% ownership for investors regardless of their nationality and domicile
- 100% repatriation of capital and profits
- Exclusion from all import and export duties
- No capital deposit required
- Easy business setup, virtual business license, flexible office spaces
- World-class infrastructure - office space, technology, business
So in a nutshell, UAE is a perfect choice for company setup and enjoy the benefits of tax savings.
The entrepreneur-friendly policies, business infrastructure, ease of doing business, availability of skilled labor, access to the international market, etc are the growth drivers for foreign investment.
Looking for more assistance on choosing the right business license type, activities and business jurisdiction, to leverage the tax savings to the most, reach out to our expert consultants right away!
Contact: Aurion Business Consultants
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