Offshore company in Dubai/UAE with an existing EU based LLC

[Gman92]

I currently work as an independent consultant in the field of software engineering, operating under my own LLC based in the EU. While I am rooted in my current location and have no immediate plans to relocate, I am considering the viability of establishing an offshore company in Dubai/UAE. The intention behind this would be to redirect a portion of my earnings from the EU company to the offshore entity.

Presently, I find myself generating income beyond what is necessary to cover my existing expenses in my current location. However, utilizing the surplus within my EU company would lead to a substantial effective tax rate of 60%, a prospect that doesn't appeal to me.

A potential solution I've pondered involves creating a salary for myself from my EU LLC, an amount sufficient to cover my essential costs and maintain my lifestyle. The excess funds could then be invoiced to an overseas company, allowing them to accumulate abroad instead of being subjected to the higher tax rate at home. Moreover, I've contemplated leveraging this offshore company and its funds to finance my travel and leisure activities outside my country of residence, alongside utilizing it as a vehicle for investment to secure future retirement plans.

Is this strategy within the realm of possibility? If so, I'd greatly appreciate guidance on the optimal approaches for implementing such a setup.

 

[Sols]

Is this strategy within the realm of possibility?

No.

Look into corporate tax residence, permanent establishments, and place of effective management for starters.

 

[Larin]

A potential solution I've pondered involves creating a salary for myself from my EU LLC, an amount sufficient to cover my essential costs and maintain my lifestyle. The excess funds could then be invoiced to an overseas company, allowing them to accumulate abroad instead of being subjected to the higher tax rate at home. Moreover, I've contemplated leveraging this offshore company and its funds to finance my travel and leisure activities outside my country of residence, alongside utilizing it as a vehicle for investment to secure future retirement plans.

Will you be performing actual services for which these invoices are issued? Will these be market, at arms length contracts (ie something that you would sign on commercial basis)? If not, then if audited these would get flaged by the tax authorities and reversed under BEPS legislation of your country.

Unfortunately, you are most likely too late in tax planning with the income you have generated. Time to plan for the income you are yet to generate.

 

[Gman92]

Will you be performing actual services for which these invoices are issued? Will these be market, at arms length contracts (ie something that you would sign on commercial basis)? If not, then if audited these would get flaged by the tax authorities and reversed under BEPS legislation of your country.

Unfortunately, you are most likely too late in tax planning with the income you have generated. Time to plan for the income you are yet to generate.

My thinking is that this would be for future income. So not the current surplus.

And since I'm doing IT work myself. I would invoice these from the other company as "consulting services", which is basically what I'm doing already now to my existing clients.

 

[JohnLocke]

You so called EU LLC - where is it located, country ?

 

[Larin]

In that case, see @Sols comments. You will most likely need to either physically move to UAE, or at least perform the work from there. Simply invoicing from there will still likely make that income taxable in your country of residence due to PE and/or CFC rules. In other wordxls, if you are the majority shareholder of the company and perform services in your country of residence, your UAE company will most likely be a tax resident in your country of residence and therefore liable for the same tax as a local company.

 

[Sols]

My thinking is that this would be for future income. So not the current surplus.

And since I'm doing IT work myself. I would invoice these from the other company as "consulting services", which is basically what I'm doing already now to my existing clients.

From all the money you "save" on taxes, set some aside for a nice suit so you look good in court.

 

[Gman92]

In that case, see @Sols comments. You will most likely need to either physically move to UAE, or at least perform the work from there. Simply invoicing from there will still likely make that income taxable in your country of residence due to PE and/or CFC rules. In other wordxls, if you are the majority shareholder of the company and perform services in your country of residence, your UAE company will most likely be a tax resident in your country of residence and therefore liable for the same tax as a local company.

Alright. that makes sense.

Just wanted to check what my options are.

Since I already pay income tax for the salary I pay myself in my country of residence, along with CIT and social security I thought there would be a better way to use the surplus left over after I've paid what I need to live a comfortable life here.

Looks like moving is the better option longterm.

 

[Larin]

Dividents perhaps? Those are usually taxed less than income in most jurisdictions.

 

[clemens]

Relocating is now a days the best option or as @Sols said, you want to build a company with substance i.e. office, staff and what else a company would need to conduct business!