Ras Al Kaimah Focus

Global Incorporation Guide [GIG] Editorial

October 21, 2015

After three decades of almost unbroken and rapid growth, Dubai, rising out of the desert like a latter day Manhattan, can confidently claim to be the commercial heart of the United Arab Emirates, and the world’s preeminent financial center between the European and Asia time zones. However, this feature isn’t about Dubai. It is about Ras Al Khaimah, a lesser-known emirate a short drive from the glittering skyscrapers of Dubai, but which is attracting investors from all around the world with its benign tax regime and regulations designed for growth.

Ras Al Kaimah: An Introduction

Ras Al Khaimah is in fact the industrial heart of the UAE, but it also has a small but rapidly-growing offshore center which serves as a conduit for investment in the emirate's industrial zone, and as a vehicle for tax minimization for businesses and investors with operations in one or more high-tax countries.

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 center, which is also a 30 to 40 minute drive from Sharjah and Dubai.

The number of expats among the 240,000 people who live in Ras Al Khaimah is lower than in Dubai, where only 22 percent are indigenous emiratis, but foreign-born inhabitants still represent about half of the emirate's population. As in Dubai, non-resident Indians make up a large percentage of the expat population, but Ras Al Khaimah has also attracted a large numbers of highly-skilled people from Europe and North America, lured there by high pay, low (or no) taxes, relatively low costs (the cost of doing business in RAK is 25 to 50 percent lower than the UAE average) and year-round sun and warmth. And it is to the emirate's major tax advantages that we now turn.

Taxation (Or The Lack Of It)

Historically, the UAE's enormous oil revenues have meant that the government, at national and local level, has had 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.

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 percent tax on UAE-sourced taxable income whereas banks pay 20 percent 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 more than 60 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 the UAE.

There are no personal income taxes in Ras Al Khaimah.

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 (GCC) to replace revenues lost from the abolition of internal trade tariffs. The GCC states – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE – previously agreed to introduce a VAT simultaneously. However, these negotiations are still ongoing, as GCC countries have yet to agree on a tax rate and a list of exemptions.

Nevertheless, in August 2015, the UAE Government revealed that it is currently undertaking studies on the impact of the VAT and is drafting three domestic laws, including a parent VAT law, which is to include the features agreed at GCC level. The other two laws would govern VAT procedures and establish a federal VAT authority.

Significantly, the UAE Government has begun to think about imposing a corporate income tax to prevent over reliance on revenues from hydrocarbons and diversify its revenue streams. Thus, the Government is also drafting a new corporate tax law, although the rate of the proposed corporate tax has yet to be agreed. However, companies established in the many free zones across the UAE should remain unaffected, because legal guarantees are in place guaranteeing that they will not be taxed for many years. And it is the free zone in Ras Al Khaimah which we will now explore.

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, and has seen impressive growth in these areas in recent years.

The zone is divided into four parks, located in various parts of the emirate. These include the Industrial Park, Business Park, Technology Park, and Academy Zone.

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.

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 addresses. 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 Khaimah city, close to Dubai in an area that is seeing rapid growth in light industry and of automated manufacturing plants.

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.

The RAK FTZ reported a 70 percent year-on-year increase in new company registrations for the first half of 2013 a period in which a record-breaking 1,994 new companies have joined the free zone, a substantial increase over the 1,170 companies registered in the same period in 2012. The number of licences renewed in the first half of 2013 also increased to 2,696, from 2,298 in the first half of 2012, representing growth of 17 percent.

New companies registered in the RAK FTZ during H1 2013 included business from the United Kingdom, India, Turkey, and Germany, among others. A broad range of industries were represented in the new registrations including consultancy, general trading, logistics, and industrial manufacturing.

Commenting on the results, Peter Fort, CEO, RAK FTZ, said: "This growth reflects investor confidence from across the globe in our cost-effective free zone and business-friendly approach and re-emphasises the world-class facilities and services we offer. Businesses are increasingly realising that RAK FTZ is less than an hour from the logistical hub of Dubai and offers the same advantages as other free zones in the UAE. Our full commitment to quality, excellence and customer satisfaction will, as usual, be the driving force for our continued growth this year."

In November 2014, the RAK FTZ was named as the Best Free Trade Zone in the GCC by the London-based International Finance Magazine, based on its economic potential, promotional strategies for foreign direct investment, transportation links, incentives and cost-effectiveness.

Tax And Other Benefits OF The RAK FTZ

The foundation stone of the RAK FTZ’s growth is its significant tax and regulatory advantages, the extents of which are almost unrivalled outside of the UAE. These include freedom from corporate taxation; no personal income taxes; no currency restrictions; and no restriction on hiring foreign employees. Furthermore, 100 percent foreign ownership is permitted and there is exemption from all import duties, plus 100 percent repatriation of capital and profits is guaranteed.

Setting Up In The RAK FTZ

Establishing a free zone entity is a relatively inexpensive and simple process, and companies in RAK enjoy some of the lowest property lease rates in the UAE. The RAK Investment Authority offers business set-up packages aimed at start-up, micro and small business starting at AED15,000 per year, which include the provision of office space, access to high-speed internet (on a limited basis) and free electricity, water and air conditioning. The more expensive packages also offer a visa processing services for up to two visas.

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 (USD68,000).

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 percent foreign and sales can be made through a UAE-registered agent or a distributor only. The activity may be industrial, commercial or professional/services-based.

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 the licence.
  • 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.

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 Parks.

In Summary

While Ras Al Khaimah may not have the same resources at its disposal as Dubai, 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 more traditional offshore jurisdictions in the not-too-distant future.


Tags: tax | Ras Al Khaimah | Dubai | services | business | Investment | Invest | Investment | manufacturing | law | Tax | investment | Other | offshore | education | India | Germany | Europe | audit | Oman | interest

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