1 Business can be set up in UAE under the following options
(a) within the various Free Zones in UAE
(b) in non-Free Zone areas (mainland areas), and
(c) through an offshore company in UAE.
Within Free Zones, 100% foreign ownership is possible whereas in non-Free Zone areas, 51% local ownership is mandatory.
Any movement of goods from the Free Zone into non-Free Zone area is deemed to be imports into UAE and subject to customs duty. Imports into Free Zone are not subject to customs duty. Apart from this there are user based service fees or indirect charges such as government fees for various services of departments, visa, licence, salik, etc.
2 Within the various Free Zones, business can be established with 100% foreign ownership. Physical presence is a must though some of the free zones provide virtual office/flexi desk office are available with restricted number of visas. Following options are possible
First option is to set up a branch of an existing overseas foreign Company (this will be extension of the parent company)
Second option is to set up a Free Zone Establishment (“FZE”) in which the sole shareholder is an individual or corporate.
Third option is to set up a Free Zone Company (“FZC”) in which there are two or more shareholders who could be individuals or corporate.
Suffix FZE/FZC/DMCC/FZ-LLC etc. will differ depending on the free zone selected. Visas can be issued for such companies. Most of the Free Zone authorities will need audited financial statements to be submitted as part of the licence renewal process every year
-Jebel Ali Free Zone (www.jafza.co.ae)
-Dubai World Central (www.dubaisouth.ae)
-Dubai Multicommodity Centre (www.dmcc.ae)
-Sharjah Airport International Free Zone (www.saif-zone.com)
-Hamriyah Free Zone (www.hamriyahfz.com)
-Ajman Free Zone (www.ajmanfreezone.gov.ae)
-Ras Al Khaimah Free Zone (www.rakftz.com)
-Umm AL Quwain Free Zone (www.uaqftz.com)
-Fujairah Free Zone (www.fujairahfreezone.com)
3 In the non-Free Zone area (mainland areas), a limited liability company (LLC) can be established with 51% local ownership and 49% foreign ownership under Federal law No 2 of 2015 concerning Commercial Companies. Though the law does not specify any minimum capital, paid up capital of AED 300,000 (One US$=AED 3.67) is usually stipulated, though in practice there is no requirement to show proof of capital at the time of set up. For obtaining trade licence physical office is a must. Some activities e.g. registered commercial agencies, real estate brokers 100% local.
Instead of 51% UAE National, an entity can be 100% owned by other GCC nationals (i.e. nationals of Oman, Saudi Arabia, Qatar, Bahrain and Kuwait) subject to approval of the competent authority.
4 Business can be carried out through an offshore company formed within JAFZA/RAK ICC/Ajman. This can be 100% foreign owned, cannot have physical office presence and no visa is issued. We act as registered agent for such offshore company in JAFZA and RAK ICC. Such offshore company can have a non-checking bank account subject to KYC of the bank. An offshore company cannot do business either in UAE or with residents in UAE. JAFZA Offshore company can own properties in Dubai in designated areas where foreign ownership of property is permitted.
5 Presently, excepting foreign bank branches and oil companies, there is no corporate income tax in UAE. Further, there is no personal income tax in UAE.
Since UAE has double tax avoidance tax treaties with many countries, it is possible to obtain Tax Residency Certificate (TRC) for individuals/operating companies addressed to a Treaty country (offshore companies cannot obtain TRC).
There are indirect taxes such as customs duty, municipal tax on rental of premises, hotel revenue, and other user based charges.
6 Excise Tax is effective across the UAE with effect from 1 October 2017. Excise taxes are as under:
-50% for carbonated drinks
-100% for tobacco products
-100% for energy drinks
7 UAE has implemented Value Added Tax (VAT) with effect from 1 January 2018 along with Saudi Arabia as part of Gulf Co-operation Council Economic union agreement. Other GCC countries (Bahrain, Sultanate of Oman, Kuwait and Qatar) are expected to do so on or before 1 January 2019 at the latest.
VAT registration will be mandatory for revenue above AED 375,000 million (US 100,000). For revenue between AED 187,500 and AED 375,000 VAT registration is voluntary.
There are limited items covering zero rate (such as exports, basic healthcare, private school education and public funded health education, international transportation of passengers and goods) for which VAT input credit will be available for VAT registered taxable persons.
There are limited exempt items (such as margin financial products, bare land, residential properties and life insurance) for which VAT input credit will not be available to taxable persons.
All other supply of goods and services will be subject to standard rate of 5%. Imports of goods will be subject to reverse charge mechanism.Certain free zones are stipulated as Designated Free Zones (such as JAFZA, DAFZA, SAIF Zone, Hamriyah Free Zone, etc.). Supply of goods from Designated Free Zone to Mainland area is considered as import by the buyer under reverse charge mechanism.
8 Broad considerations for set up
If one is looking for actual trading with visa and 100% foreign ownership, it is best to set up an entity in one of the free zones which allows 100% foreign ownership.
If one is interested in setting up a holding company, then Offshore company can be set up. Offshore company can then be a shareholder of other entities carrying business outside UAE subject to regulations permitting such ownership in those jurisdictions where you intend to invest. Offshore company can also be a 100% shareholder of a free zone company or 49% shareholder of LLC depending upon where you intend to carry out actual operations in Dubai.
Although there is no income tax in UAE presently for trading and investment operations, tax implications of the investor in his home jurisdiction needs to be examined in planning investments in UAE.