‘’We’ve been researching online about the topic and were shocked by the amount of non-transparent, confusing information that is circulating out there.’’
Nowadays it is easy to get lost in the huge amount of (mis)information regarding setting up and running companies in the UAE (Dubai). We believe this creates a feeling of unease for potential clients and demotivates them from setting up in the UAE. Through this blog, we would like to clear all confusion, and doubts and give you a fully transparent, comprehensive picture of all you need to know about setting up and maintaining a company in UAE. The source and co-writer of our blog have been in UAE for over 10 years, studying and practicing the company setup domain and all the ancillary elements related to it.
How Tax-Free is the UAE (Dubai) really?
UAE has been completely tax-free until January 2018, when the federal tax authority of UAE was launched along with a 5% VAT scheme. Every company and freelancer, however, can operate with 0% VAT until approx. USD 102.000 revenue per calendar year. Once the revenue of a company or freelancer crosses this threshold, it’s mandatory to apply for a Tax Registration Number, known as the tax ID in Europe within 30 days of crossing the threshold. The application can be done directly through the Federal Tax Authority or with help of a local accounting/auditor firm. The process usually takes up to 3-4 weeks.
Once a company or freelancer gets his TRN, 5% of the incoming revenue from services solely provided to other UAE companies has to be paid to FTA through quarterly VAT returns. So if you own a UAE company and are selling your services to another company for USD 100,000, 5% of 100,000 = USD 5,000 will need to be paid to FTA by your company as VAT.
On the other hand, if your UAE company buys from another UAE company, you will be paying 5% VAT on the invoice. This VAT rate can be returned through the FTA every quarter (similar to Europe). For outside of UAE sales, you can record a 0% export supply in your VAT return. When buying from outside the UAE you are not able to claim any VAT back. There are some exceptions to these VAT matters, for instance, if you physically carry out services in the UAE for a company that is located outside of the VAT area, you will still be required to pay VAT regarding these services.
Currently, personal income tax is 0%, taxes on capital gains is 0%, taxes on dividends is 0%, corporate tax is 0%, and VAT is 5%.
The UAE has announced the arrival of a 9% corporate tax which will be implemented from the 1st of June 2023. This will be for companies commencing their financial year on or after the 1st of June, providing the benefit of having a 0% corporate tax rate to companies setting up their business before the 1st of June. Based on communication by the Ministry of Finance, “free zones will continue enjoying tax incentives” and it also seems there will be multiple ways of optimizing the corporate tax within UAE.
My Sole Proprietorship in Dubai
A sole proprietorship in Dubai can be set up by both foreign and local citizens in the Emirate. Establishing a sole proprietorship in Dubai requires a UAE national or national of the GCC. Foreign entrepreneurs who wish to open sole establishments in Dubai will require a local sponsor with a residence permit. We can help arrange to acquire one of these local sponsors to help you establish in the UAE.
A Dubai sole trader can carry out a commercial or professional activity, therefore the license to obtain must reflect these activities. Even if there is no minimum capital amount to open a sole trader in Dubai, an individual must calculate the amount needed to carry out his or her activities. Another requirement to establish this type of business form is to have a registered address in Dubai.
The benefit of having a sole proprietorship as opposed to any of the other business forms in the UAE (mentioned below) is that you can legally practice your professional services anywhere within the UAE including the free zones. Incorporating a sole proprietorship in the UAE will ensure you of obtaining a shareholder passport copy and a resident visa copy.
Why do I need a resident visa?
It is possible to set up a company in UAE, completely remotely in just a few days, it’s not mandatory to become a resident visa holder, as per UAE jurisdictions. However, if you want a business bank account in UAE, banks will be asking the owner of the company for his/her UAE resident visa as it has become a standard requirement.
If you open a bank account (corporate or personal) in UAE as a resident visa holder, you will be viewed as a UAE Tax Resident and exempt from information exchange between your bank account in UAE and your country of residence.
Is it mandatory to spend 180+ days in the USA per calendar year?
UAE immigration requires UAE investor visa holders to enter the UAE only once every 180 days in order to keep their residency status active. They are quite lenient with this rule as entering the UAE for only an hour or two is sufficient and viewed as entering the UAE.
What’s important to watch out for, however, is to not ‘trigger’ any tax residency in any country outside of UAE, based on which you may be taxed in another country. In such cases where you are a tax resident in another country outside of UAE, UAE will keep “taxing you” at 0%.
How do I get my visa?
STEP 1 – ESTABLISHMENT CARD: Once your company’s trade license is issued, the so-called “establishment card” or “immigration card” or “E-channel” (they are all the same, just in different jurisdictions they have different names) must be applied through immigration authorities. This is needed for the company to be able to get resident visas for its shareholders/employees. Typically, this process takes anywhere between 1 and 5 working days. The investor doesn’t have to be in UAE in person during this step.
STEP 2 – ENTRY PERMIT OF VISA HOLDERS: Once the Establishment card of the company is issued, the “Entry permit” of the shareholder or employee(s) of the company. Must be applied for. Typically, this process takes anywhere between 1 and 5 working days, there is a way to accelerate it for some extra fees. The investor doesn’t have to be in UAE in person during this step.
STEP 3 – MEDICAL TESTS and Emirates ID Application: once the entry permit of the applicant(s) is ready, the applicant must do medical tests (blood test, chest X-ray, eye scan) in an authorized hospital in person. Medical results then must be submitted to free zone authorities and immigration. This process can be done as fast as one day. Once the medical results are ready, the applicant must book an appointment in an Emirates Identity Center for an Emirates ID application. Usually, the authority gives appointments in 2-3 weeks but there is a way to accelerate this process for extra fees and come be done as quickly as in 1 day. (Appropriate paperwork and UAE PCR test not older than 48 hours must be present during Emirates ID application). The Emirates ID application document must be submitted to immigration so that they issue the resident visa of the applicant (in some free zones they stamp the visa in the passport, in some free zones, immigration only issues an electronic copy). In both cases, the visa will be present in the so-called ICA application (available for iPhone and Android). Once the visa is issued, Emirates ID is ready usually in about 1-2 weeks (physical emirates ID is needed for personal bank account opening). There is a way to accelerate this to as quick as 1 day, however.
Typically, this process takes anywhere between 1 and 5 working days, there is a way to accelerate it for some extra fees.
OTHER COMPANY FORMS AND JURISDICTIONS?
This is probably where most readers researching online freak out the most, because of the non-transparent, confusing overflow of information being available out there.
We’ll approach this topic in a very straightforward fashion. 3 company forms exist in UAE à
- Offshore companies (RAK Offshore, Ajman Offshore, Jafza Offshore, etc)
Advantage:
- this is the cheapest company form
- starts from USD 1.500 per year
- 100% foreign ownership is possible
- Can be setup remotely, the investor doesn’t need to be in UAE physically
Disadvantage:
- you will not get a bank account for this company in UAE
- you cannot conduct business in UAE
- you cannot get any resident visas through this company
2. Freezone companies (In total there are 30+ free zones in the UAE, like DMCC, Dubai International Freezone, Umm Al Quwain, etc)
Advantage:
- this is the most popular solution, mostly used for companies with wholesale trading activities (food trading, electronic appliances trading, etc.) and consulting activities (IT development, marketing, management consulting)
- this company can support you with resident visas
- The government fee for the licenses can be between USD 4,500 and USD 10,000, depending on the free zone and visa allocations of the company
- 100% foreign ownership is possible
- Can be setup remotely, the investor doesn’t need to be in UAE physically
Disadvantage:
- You cannot do retail trading with a free zone company (meaning you cannot operate an ice cream shop)
- most free zones outside of Dubai are considered “high risk” by UAE banks, therefore, we always suggest to chose a free zone within Dubai
3. Dubai Mainland Companies
Advantage:
- From a banking perspective, this is the ‘lowest risk’ choice and gives you the quickest possible business bank account opening time frame
- Regulations have changed recently and it is now possible to set up such mainland companies without the need of giving up 51% to a local sponsor
- 100% foreign ownership is possible
Disadvantage:
- From all company types, this is the priciest option for setup and maintenance as well (government fees starting from USD 6,000 approx and up)
- It’s mandatory to have a physical office space rental in UAE which bumps up the costs (in case you don’t need a physical office, we can help you with a cost-effective solution that will comply with Dubai economic department and get you your trade license)
- There is limited liability in the case of mainland companies with trading activities (trading of food products or other products for instance) but liability is not limited in the case of mainland companies with consulting activities
- In the case of mainland company setup, the investor must be present physically during the company setup in Dubai
So how do I choose the right license and activities? We are happy to help you with a free consultation and make sure you make the best possible choice, for your individual case. You can reach us through e-mail ([email protected]) or by phone (+31682918628).
Want to learn more about FirmEU’s services, then feel free to go to our service page. If you wish to learn more about our banking services, then feel free to go to our offshore banking services specifically for the UAE, or our traditional banking page.