Tax Residence In Dubai, UAE
29 September, 2015
A free trade zone (FTZ) entity in UAE offers many tax and business possibilities.
For a start, a FTZ company enjoys full exemption from income and corporate taxation, 100 percent foreign ownership, no exchange restrictions, free profit repatriation, all benefits accruing from UAE's nearly 80 double tax treaties etc.
A further possibility available to a FTZ is to issue residence permits and obtain tax residence certificates from the UAE authorities for its foreign owners and employees. A FTZ company, must have physical presence in the UAE and, in that respect, it must own or hire premises. If only a small office is required as the company will be used by its foreign owners mainly for residency purposes the most cost effective options are available by free zones in the northern emirates, notably Hamriyah and Ajman free zones. Physical presence options include "flexi desks" or "flexi offices".
Furthermore, and if a local bank account is maintained with some movements, the foreign owners or persons can apply to the Ministry of Finance to receive a UAE tax residence certificate.
A UAE residence permit and a tax residence certificate can be useful to many foreign owners or employees of FTZs who wish to register tax residency in the UAE. It is worth noting, that banking institutions in UAE and many outside consider UAE tax residence certificates as sufficient proof of tax residency in the UAE. As in all cases, the advice of a competent tax lawyer must be sought.
Under UAE federal law, foreign businesses have three main entities to choose from in order to conduct business in the UAE: a local limited liability company ("LLC"), a free trade zone entity ("FTZ"), and an international business company ("IBC").
FTZ companies are owned 100 percent by foreigners. They also meet the growing necessity in international tax planning of having necessary substance. This is not possible to deliver from the traditional offshore jurisdictions (RAK) since they typically only offer an IBC regime.
The main advantages of setting up in one of the free zones in the UAE include:
- residence permits for the owners of the entity
- guarantee for 15-50 years against the future imposition of corporation tax.
- import of goods is duty free, provided the goods are not supplied to the local market
- streamlined procedures: all formalities are typically dealt with through the free zone authorities instead of the various government departments
- 100 percent foreign ownership is allowed
Obtaining a residence permit is the primary condition for being considered as resident in the UAE.
As a general rule, a foreign individual has to have a sponsor in order to apply for a residence permit in the jurisdiction. For many expatriates, the company that employs them will act as their sponsor and secure them residence visa. For those who do not come on an employment contract, there are two other ways for obtaining UAE residency:
- investment in real estate (property residence visa)
- set up of corporate structure to act as sponsor
Real estate investor/property residence visa UAE government in June 2011 introduced a new system extending the validity of the visa granted to real estate investors for up to 3 years. Under the property residence visa, holders reside freely in residence UAE but are not allowed to work.
The preferred way to obtain residency is through a corporate structure. For foreigners, setting up a FTZ company is a practical way of obtaining sponsorship. As far as the company is concerned, it must have physical presence in the UAE. In that regard, the most interesting and cost effective options are proposed by free zones situated in the northern emirates with possibility to have "flexi desks" or "flexi offices".
Requirements for a personal tax residence certificate from the Ministry of Finance of UAE:
- request letter from the individual
- passport copy and valid visa copy
- bank statement for the last 6 months
- certificate from the UAE company stating the individual activity and sources of income
- AED 1.000 (US$300, equivalent)
An independent free zone authority governs each FTZ. The rules and regulations of each FTZ do not differ substantially, all being simple yet comprehensive. The UAE Companies Law is not applicable in the FTZs.
UAE has witnessed significant growth in the number of free trade zones. Each zone has a focus on a particular type of industry. Notably within Dubai: Jebel Ali free zone, Dubai Airport free zone (DAFZ), Dubai Technology and Media free zone, Dubai Multi Commodities Centre (DMCC), Dubai International Financial Centre (DIFC), Dubai Healthcare City, Dubai Maritime City, Dubai Aid Humanitarian City, Dubai Techno Park, Dubai Auto Parts City, Dubai Textile Village, Dubai Heavy Equipment and Trucks, Dubai Industrial City (DIC), Dubai Flower Centre, Dubai Logistics City, Dubai Silicon Oasis, Dubai Studio City, Dubai Carpet free zone and Dubai Outsource.
Apart from the Dubai FTZs mentioned above, other emirates also have FTZs, albeit few in number.
Special mention needs be made for Hamriyah free zone (in Sharjah) and Ajman free zone (in Ajman). They are both relatively easy to set up, have competitive fees and can be especially useful for tax residency situations. The cost of setting up an FZ entity in Hamriyah or Ajman is in the region of US$14κ inclusive of all costs, fees and expenses - professional, government, flexi office annual rent and disbursements. Ongoing, annual costs are around US$10κ. These two FTZs are especially important for foreigners who opt to use their FTZ entities for residency permits.
As world markets become increasingly intertwined, taxpayers will need to be ever more aware of cross-border considerations. This is especially important in the current environment, where focus on the disclosure, reporting, and taxation of foreign assets has sharpened. Rules are introduced continuously and the focus on anti-avoidance rules is building up.
Whilst domicile in the UAE may not be possible depending on the laws of the home country, certainly with a renewable residence visa that is issued to persons or associates of a FTZ, individuals may reduce or eliminate home country taxation. If they also obtain a tax residence certificate in UAE they can claim tax residency which they can reinforce, inter-alia, by having a private accommodation and maintaining a local bank account.
Feel free to contact our Director Mr. Costas Ioannou CIoannou@oneworldmideast.net to discuss possibilities.
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