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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 for strategic industries.
For activities notified by each of the Emirates 100% foreign ownership is permissible in non-Free Zone areas also.
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 licencerenewal process every year
You may like to visit the websites of some of the Free Zones as under:
-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) under UAE Commercial Companies Law can be established with 51% local ownership and 49% foreign ownership for reserved/strategic sectors.
For notified activities in each of the Emirates 100% foreign ownership is permissible. Most trading activities and manufacturing activities can be established in mainland areas under 100% foreign ownership.
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 documentation 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. However with effect from1st June 2023, corporate income tax will be levied at 9% for income exceeding AED 375,000. This will be applicable for financial years commencing after 1st June 2023.
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 productsincluding smoking devices and liquids used therein
-100% for energy drinks
-50% for sweetened drinks
Above goods are referred to as “excise goods”.
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. Free zone provides flexibility in operation and use of English documentation as per Free Zone laws.
If main activities are to be conducted with mainland areas then 100%% foreign ownership is available for many trading and manufacturing activities (excluding any activities in strategic sectors)
For financial years commencing after 1st June 2023, corporate income tax will be levied at 9% for income exceeding AED 375,000 across UAE business.
Free Zones are not subject to corporate income-tax but detailed Decree and regulations are waited for the extent of taxability for Free Zones and mainland areas.
Presently, there is no personal income tax for individuals.