Tax Savings and Company Set-up in the UAE

How can Investors from Germany, UK, Italy, etc., Save Tax through Company Formation in the UAE?

UAE is an investor favorite destination for company formation, property investment, buying shares of companies, luxury investments like yachts, golf clubs, hotel apartments, and many more…

UAE is known for its business-friendly policies, robust & growing business ecosystem, lifestyle, ease of doing business, and the Government support towards entrepreneurship.

The initiatives from the UAE Government to promote innovation, science, technology, and creativity is highly commendable. The Free Zones of UAE is transforming the business ecosystem and driving foreign investors to the region.

Tax Savings in UAE

Why Investors from high Tax Rate Countries Prefer UAE?

One of the main reasons why investors from countries with a high tax rate like Germany, UK, Italy, etc., are preferring UAE is due to the Zero Taxation status.

Let’s explore the UAE’s Tax Structure in detail and also the other benefits for the investors who set up their company in the UAE.

UAE’s Tax Structure Details

Value Added Tax (VAT)

In UAE, Value-Added Tax (VAT) was introduced from 2018, all the residents and businesses operating in the UAE are subjected to pay a 5% VAT to the government for all transactions invoiced in the UAE.

The VAT was introduced in the UAE as a growth driver for the economy and as a new income source to provide high-quality public services.

Apart from the VAT, there is no Personal or Corporate Tax in the UAE.

The strategic industries like the Oil & Gas, Petrochemicals, and Foreign Banks are liable for Corporate Tax in the UAE.

Excise Tax

In UAE, there is an Excise Tax on certain items categorized as harmful to health and environment such as:

  • Carbonated Drinks (50% Excise Duty)
  • Energy Drinks (100%)
  • Tobacco & Tobacco products (100%)
  • Sweetened drinks (50%)
  • Electronic smoking devices & the liquids used in the devices. (100%)

Taxes in Tourism

The restaurants, hotels, hotel apartments, resorts, in the UAE charge a few taxes and fees on the room rates.

  • Room rates (10%)
  • Service Charge (10%)
  • Municipality Fees (10%)
  • Tourism Fees (6%)
  • City Tax (6-10%)

Double Taxation Avoidance Agreement

UAE has signed the Double Taxation Avoidance Agreement (DTAA) with more than 90 Countries across the world. DTAA is to promote development goals and diversify UAE’s sources of national income. It will also remove the difficulties relating to cross broader trade and investment flows.

It helps residents of UAE to avoid taxation of their income generated in UAE at their home country. The resident companies and individuals can apply for a Tax Residence certificate to enjoy the benefits of the DTAA Treaty.

Investors from the High Tax Rate Countries could leverage the benefits of the DTAA Treaty by setting up a company in the UAE and applying for the Tax Residence Certificate.

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Business Setup in Dubai

Being said that UAE is free from Income and Corporate Tax, there are some fees and recurring payments business will incur for setting up the store here and successfully run the business.

Here is a basic list of fees an entrepreneur must have a look at before setting up your store in UAE.

  • Business license Fees – depending on the nature of business and the jurisdiction that is chosen
  • Office Rent – Depending on the office space and location
  • Visa and Immigration Services – Government fees for applying for residence visa and processing of the visa of the investors and employees
  • Document Clearance & Attestations – All legal documentation, attestation from UAE Embassy & other Government Authorities, & Notarization from the Dubai Courts, etc.

Once, the business license is received, to start running the operation, few additional cost centers have to be accounted for like the Import/Export registration in Dubai Customs for Trading Companies, License renewals, the addition of business activity, opening a new branch, etc.

For investors from Europe and High Tax rates countries company formation in UAE will turn out to be a lucrative investment due to the tax savings and also there are immense business benefits from setting up your store in the UAE.

Company Setup in the UAE – Mainland & Free Zones

For the company set up in UAE, there are two major jurisdictions – The Mainland, & the Free Zones.

The mainland business setup requires a local sponsor as one of your major shareholders and you will have the flexibility to set up your store and operate anywhere in the UAE.

For a trading business, forming a Limited Liability Company in the mainland of UAE is a perfect choice as you can freely trade in the local UAE market.

If you are looking for a 100% foreign ownership type company, and a relatively small office area with plug-and-play business infrastructure like executive offices, meeting rooms, wi-fi support, call center assistance, etc., to start off with to test the UAE market, the Free Zones are the ideal choice.

So in nutshell, UAE is an all-time favorite investor destination due to the tax savings, robust business infrastructure, easy access to the global market, ease of doing business etc.

To know more about Company Formation in the UAE, connect with our expert business consultants!