The introduction of corporate tax in the UAE sparked extensive discussions within the business community. This step was crucial for moving out of a gray zone where many companies operated. The government aims to improve the jurisdiction's image by establishing a reputable tax environment, potentially attracting foreign investors.
The key point was the UAE's exit from the FATF gray list. Intensive negotiations over the past two years led to the fulfillment of all necessary conditions for this exit, reflecting the authorities' commitment to transparency.
Conditions and Requirements for Taxation
With the introduction of corporate tax, certain complexities arose. As of January 1, most companies, regardless of their registration location, must register as corporate tax entities. However, there are numerous exceptions based on activities rather than registration sites.
Exemptions and Benefits
Not all companies fall under corporate tax jurisdiction. For instance, firms registered in free zones can avoid taxation by meeting specific criteria. A critical aspect is having a physical presence in the UAE, including an office and real expenses, ensuring the company isn't merely "washing money."
The basic tax rate is 9% on profits, with no tax on turnover. Each company can deduct its expenses, making taxation fairer. The existing tax-free threshold of AED 375,000 (approximately USD 100,000) allows low-profit companies to avoid taxes.
Deductible Expenses and Salary Taxation
Representative expenses play a significant role in taxation. In the UAE, 50% of such expenses can be deducted, but nuances exist. The tax authority will assess which amounts are market-appropriate, and a clear list of deductible items is not yet available.
Regarding salaries, there are no strict limits, except that compensation should align with market conditions. If your company employs remote workers, this is acceptable if there's documentation for payment.
Freelancers and Employee Taxation
Payments to freelancers working abroad aren't considered a violation of tax laws. The onus is on freelancers to handle their income taxation correctly, provided they have valid service contracts.
Absence of Social Taxes
The UAE does not impose payroll taxes or pension contributions. However, there are VAT and corporate tax implications. VAT may not apply to income from abroad or GCC countries.
VAT: Rules and Rates
VAT in the UAE has two main rates: 0% and 5%. If your company receives payment from a foreign entity, such as from the U.S., VAT does not apply. However, payments from UAE or GCC companies incur a 5% VAT.
If payments originate from designated free zones, VAT also doesn't apply. Stringent conditions govern company registration in these zones.
Impact of Substance Requirements on Business
Currently, substance requirements are not mandatory for companies registered in regular free zones. However, to benefit from corporate tax exemptions, businesses may need to demonstrate physical presence in the future.
Substance and Audit Requirements
If you don't plan to utilize tax exemptions, substance requirements may not concern you. However, to enjoy tax benefits, all conditions must be met, and mandatory audits are required for some mainland companies.
Differences in Taxation for Freelancers and Employees
There is no tax distinction between freelancers and permanent employees. Companies registered in free zones can utilize both without extensive accounting procedures, although permanent employees must have an Emirates ID.
Dividends and Taxation
Currently, dividends paid to individuals are taxed at a 0% rate, meaning no source tax is applied when companies distribute dividends to shareholders.
Prospects and Limitations
Depending on your business strategy and potential changes in tax laws, you should be prepared for limitations. For instance, if you plan to handle large turnovers, consider strategies to minimize tax liabilities.
Mistakes When Choosing a Jurisdiction and Opening a Company in Dubai
It's essential to note that initial costs for opening a business in Dubai, around USD 7,000, are not the only expenses. Annual license renewal costs are similar to registration fees, which can become a burden if the company isn't actively operating.
Myths About Free Zones
There’s a belief that companies registered in free zones face restrictions and must establish a mainland entity. In reality, most free zones allow operations with both international clients and those on the mainland.
When selecting a free zone, consider different categories and types. Less expensive free zones may not meet your business needs, while some offer unique advantages.
Opening a Bank Account: Nuances and Requirements
When opening a bank account in Dubai, banks may request documents based on transaction amounts and frequency. Generally, payments below USD 20,000 require no additional documentation.
CEO Residency
The CEO must have an Emirates ID when opening the account, which necessitates their presence in the country. Once the ID is obtained, there are no strict residency requirements.
Legal Address and Bank Interaction
The company must have a registered legal address. Some banks require the director to be present at this address at least once for account opening.
Neobanks and Online Banking Services
The situation with neobanks in Dubai is evolving. New players are emerging, but it’s essential to assess their conditions, including transaction costs.
Opening a company in Dubai can facilitate tax optimization. However, consulting tax advisors is crucial to avoid errors. Thoroughly assess risks and opportunities before deciding to register a business in Dubai.
регистрации бизнеса в Дубае.
Comments