Why Dubai is Still Unique
Contributed by Freemont Group
21 July, 2011
Dubai had its fair share in the global downturn. Real estate prices plummeted and many expatriates had to leave the UAE but for those still here it is a much more pleasant place to be. Aside from the lower rental and property prices, there are less people, less traffic jams, a clean metro, 40 Mbps fiber optics internet connections, and last but not least: freezones competing for business. And Dubai is still unique in many respects: a major cosmopolitan city located in a country that does not levy direct taxes of any kind, has no VAT, and only a 5% customs duty. It is an offshore jurisdiction without the offshore stigma. But maybe an even more important feature that makes setting up in business here so attractive is that through the UAE it is possible to access the worlds labour force. For any person, skilled or unskilled, a work permit can be obtained with a minimum of hassle. There is no other country that offers this unique combination of features.
Operating a business in the UAE
Under UAE federal law foreign businesses have three main forms to choose from to conduct business in the UAE:
¨ As a local limited liability company;
¨ As a branch of a foreign company;
¨ As a representative office of a foreign company.
Alternatively, six out of seven Emirates (the exception being Abu Dhabi) offer the possibility to conduct business out of a freezone and two Emirates Dubai and Ras al Khaimah offer an International Business Company regime.
If there is no need to sell goods directly to the local market then setting up in a freezone is often more attractive than setting up as a local company, which requires 51 per cent local ownership. The practice is to allow the provision of services through a freezone entity to the local market as long as a significant proportion of the turnover is realised abroad.
The main advantages of setting up in one of the freezones in the UAE are as follows:
· 100 per cent foreign ownership is allowed;
· A guarantee for 15-50 years against the future imposition of corporation tax.
· The import of goods duty free provided the goods are not supplied to the local market;
· Streamlined procedures: all formalities are typically dealt with through the freezone authorities instead of the various government departments;
· No restrictions on hiring expatriates.
The freezones each have their own freezone authority. These are profit-making entities. Their main source of income is derived from renting office space, collecting license fees, and providing services to the companies operating in the freezone. In all freezones financial statements need to be submitted to the freezone authorities annually.
One of the pleasant side effects of the economic downturn is that freezones are competing for business more so than before. For example, whereas it was an absolute requirement to rent office space until a few years ago, now there are several freezones outside Dubai that have introduced a flexi-desk concept. This means that a room is shared or a desk is rented for a number of hours a month.
The UAE is particularly well positioned to cope with the increasing pressure from onshore tax authorities to provide real economic substance. The UAE freezones offer a very easy and inexpensive way to obtain office space, locate a server, and hire staff: i.e. those factors that are important to determine whether a company has real economic substance. Furthermore the professional infrastructure is developed. A broad range of advisory, support and outsourcing services is available that will further enhance the possibility to locate real business functions here.
International Business Companies (IBCs)
Dubai, through its Jebel Ali Freezone, and Ras al Khaimah, through the RAKIA freezone and the RAK Free Trade Zone, both offer an IBC regime. These companies are ideal for holding investments such as shares in local or freezone companies, UAE real estate, or for trading activities outside the UAE. IBCs cannot rent office space or apply for staff visas, and they are not allowed to trade with parties inside the UAE.
All in all, Dubai offers something that to many will sound too good to be true: an unrivalled lifestyle in a business-friendly, no-tax environment, with a strategic location and access to all the services that you would expect to be available in a world-class business centre.
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