Headquarter services tax-exempt in the UAE?

JustAnotherNomad · Friday at 17:28

Wow! That was really comprehensive.
Unfortunately, as usual, it basically just says: "This is my opinion. But who knows what the authorities will say, we really have no idea..."
Typical UAE.

JustAnotherNomad · Friday at 18:50

@Don Do you have any experience with this?

daniels27 · Friday at 19:43

I think it is UAE and all remains open. Probably they won't audit you.

Don · Friday at 20:27

JustAnotherNomad said:
I found @Don's comment here very interesting:

Post in thread 'Iran for doing business tax free'

Nov 5, 2024

ecool said:

Is this 20-year tax exemption the same as the 50-year tax exemption promised by UAE freezones?

Click to expand...

It's not exactly the same. Nowadays, in the UAE, rather limited activities are exempt from tax (also referred to as qualifying activities), so in Iran the scope is broader.

However, you can still have your UAE entity provide headquarters services (tax-free in the UAE) to affiliated entities, e.g., in Iran.

To do business globally with an Iranian company, you might need to have intermediary entities in other jurisdictions.

Don

Indeed it seems like "Headquarter services to Related Parties" are on the list of "qualifying" (tax-exempt) activities.
Does anyone have more insight how this is defined?

Say you are an SEO agency.
You have sales offices (local subsidiaries) in different high-tax countries that simply resell the services of the UAE company.
Could this be seen as "headquarter services to related parties"? I guess not if the actual SEO marketing is done from the UAE (SEO marketing is not a qualifying activity and the company needs to have 95%+ qualifying activities to get the tax-free status).
But what if the UAE company subcontracts the actual SEO marketing work to firms in India and Pakistan? So all the UAE company is does is coordinate the work between the sales offices and the partner firms? Could that be headquarter services?

You may find this interesting as well
https://www.pgplaw.com/analytics-an...zone-vs-distribution-from-a-designated-zone-/

https://www.pgplaw.com/analytics-an...zone-persons-guide-substance-for-hq-services/

JustAnotherNomad said:
USER=20196]@Don[/USER] Do you have any experience with this?

Provided the relevant conditions are fulfilled in substance (not just in form) then it can work.
Its a rather complex area.

Marzio · Saturday at 08:46

JustAnotherNomad said:
Doesn't make sense

You're right, i missed the boat with this one.

I thought HQ = final holding while isn't always the case.

daniels27 · Saturday at 15:11

I think this whole "headquartering" originates from the UK jurisdiction's economic substance rules.
https://www.gov.gg/CHttpHandler.ashx?id=141223&p=0
https://www.gov.im/media/1365807/ec...nsey-isle-of-man-and-jersey-26-april-2019.pdf
There, headquartering is definined as

taking relevant management decisions
incurring expenditures on behalf of intra group persons
ordinating group activities

‘Incurring expenditures on behalf of group entities’ includes the taking of specialist advice or procuring technology on behalf of the group as a whole, or purchasing significant assets / specific services for / on behalf of a group entity.

There is also distribution and service centres which are defined as

transporting and storing goods, components and materials
managing stocks
taking orders
providing consulting or other administrative services

And more specifically:

The definition encompasses companies which purchase raw materials and finished products from other non-resident members of the same group3/connected persons and re-sell them for a profit.
The definition also encompasses companies which provide services, consulting or other administrative services, to other non-resident members of the same group/connected persons.

Now, argueing from that perspective, I would say that at least in the UK realm, headquartering would not include product/service trade as they are listed elsewhere more specifically.

But seems the UAE law is somewhat quite unclear.

JustAnotherNomad · Saturday at 18:53

Don said:
You may find this interesting as well
https://www.pgplaw.com/analytics-an...zone-vs-distribution-from-a-designated-zone-/

https://www.pgplaw.com/analytics-an...zone-persons-guide-substance-for-hq-services/

Provided the relevant conditions are fulfilled in substance (not just in form) then it can work.
Its a rather complex area.

Thanks. Yes, it definitely seems quite complex.
But it also seems like something that might work well for someone who wouldn't mind actually living in the UAE. Substance shouldn't be an issue, you would need substance anyway for proper transfer pricing.
But how can you get certainty if your setup would work or not?

Headquarter services tax-exempt in the UAE?

Rainmaker

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