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UAE clarification of Freezone Qualifying Income
- Thread starter joffreylol
- Start date
Transfer pricing is not applicable to salaries. OECD manual exactly says to which kind of transactions is transfer pricing applicable.
Only problem with salaries is how you define a salary.
There has to be at least some regular (monthly/weekly) amount paid + you can add bonuses (annualy or semi annualy).
If you just transfer one sum every year without any regular payments, it will be not considered as salary. It will be considered as income of sole proprietorship (even unlicensed) and it will have to be taxed and transfer pricing rules willl be applicable as well.
For those just holding passive investments - you can just hold the investments personally and be taxed at 0% right?
As long as it's not earned income. Capital gains for individuals are not taxed.
As long as it's not earned income. Capital gains for individuals are not taxed.
You are all still forgeting to one of main conditions.
Only those freezone companies will be tax exempt which will have a real substance.
It means:
You need a real office
You need a real staff (out of you as a director)
The most of your suppliers have to be from UAE
Allmost all decisions of the director has to be done in UAE. If you live outside of UAE and come for several days every 6 moths, it is not possible.
UAE is not interested of having their freezones used as a tax fraud centers any more.
Only those freezone companies will be tax exempt which will have a real substance.
It means:
You need a real office
You need a real staff (out of you as a director)
The most of your suppliers have to be from UAE
Allmost all decisions of the director has to be done in UAE. If you live outside of UAE and come for several days every 6 moths, it is not possible.
UAE is not interested of having their freezones used as a tax fraud centers any more.
This absolutely blows my mind! I can't fathom a few weasels I never voted for ...
The fact that we are ALL speculating here and nothing is an absolute certainty, IMHO, reveals to me that UAE might be over in terms of Tax-Free Zones unless UAE is playing the long game with appeasing "behavior" and hoping for the "influence" of the Western world. i.e. EU & USA is abated by the new multipolar world of BRICS and the rest of the Western opposers.
My question is Without Tax free status who is interested in Doing Business in Dubai Free zones ?
My Friend which World you are living ..Just ask any Business man in Dubai that Why they are in Dubai ? Most come for tax saving .......Dubai created Freezone for tax saving .....So they can invite International Business and sell their Low quality Building ..whole success of Dubai is result of it's tax free status....Without Tax saving Dubai has nothing to offer...People will happily pay 17% in Singapore than in 9% in Dubai....as Singapore is democratic country with fair justice system.......Most Important people do not mentioning is, It Is sharia law country with monarchy ... government is always right no matter what... In many cases, the courts are seen as being biased in favor of the government or local businesses. This makes it difficult for businesses to get a fair hearing if they are involved in a dispute with the government or a local business.
Looking at other countries where you can fight tax enforcement in a court of law and win and also defer taxes and write them off with other business expenses, that would be impossible in the Dubai due to its arbitrary court system and monarchy .The only thing going in Dubai's favor was its tax free status...with that gone....it's time to run...Dubai is nothing but an over glorified hell hole with everything artificial under the sun...and the sun is hotter than hell as well.
9% tax + Desert + Sharia law + Monarchy + No pension + No affordable Public Health care + No Public school = who is interest in Dubai anymore ?
You can check all my old post ....actually I am supporter of tax free Dubai ......but with New Tax.....It is not wise to support Dubai.....
Based on the list of qualifying activities i'd say that UAE wants to move towards being seen as a headquarter holding location (points c and h) and financial center (points f, g, i, j).
There aren't many final holding locations where shareholders are not taxed on dividends distribution.
Fred will defend UAE as "the best solution for everything" as long as possible. His business is to sell IFZA freezone company formation service + visa. He is a main advertiser here.
Even when freezone business will not make sense to the most of the business world any more, he will defend UAE for a years. Why would he destroy his business and loose all the money paid for advertising here?
Condition with relevant substance is exactly set in a law. UAE position is absolutely exact. There are no unanswered questions any more. But Fred will argue that we have ro wait for more and more informations. To keep his business alive as lonf as possible.
What is freezone company usable for? For obtaining UAE visa. It was worth until UAE was not in a grey list. There are some better options now. Freezone company does not make any sense for international business from 1st June 2023.
Whilst we all take professional's in the company setup biz' advice with respect, we do have to keep in mind they have -understandably so- an agenda, and using their sole opinion as an absolute enlightening guide should be taken with caution.
For what it's worth, I will share the reply our law/tax advisor firm (the one that runs accounting etc for our business): he basically said that indeed typical digital FZ companies are subject to CT, but he also said he was expecting clarification and that he was reasonably convinced that there would be a legal exception added. His advice was to wait until further clarifications are released.
So it does seem indeed we've yet to wait to see exactly how bad they hammer digital FZ companies etc (eg, non Shipyard-oriented companies).
As a personal thought, I believe there are two situations we might be facing:
1) Dubai has just rolled out a sloppy rule book and is yet to patch it up, covering all typical freezone companies like the above mentioned digital nomad type of business etc., so its just a matter of waiting a few weeks for them to get their stuff straight.
2) Dubai is shifting towards another type of investor, of a much, much, much higher profile. Shipyards, etc. and sawing off all the digital nomad type of company with 1-2 employees (usually the owners of the company) who have just relocated in UAE to -legally- pay less taxes., turning UAE into a more HK-type of approach which will -lets face it- bring less heat on them under the eyes of snowflake countries (EU/USA/UK), who know they are bleeding to death by losing those small digital type of taxpayers. Because those countries didn't stand a chance against huge companies anyway (as big companies usually have the resources to relocate and optimize if they have the will to do so), not so for a regular joe doing digital marketing who figures he could be doing the exact same stuff from Germany or Laponia, so chooses Dubai because it's zero taxes.
If it was another country, I would be 100% sure it's the second scenario, but with UAE being such a sloppy country (run by clueless arabs and executed by even more clueless indians), I would not be surprised if this is just another classic case of laziness combined with incompetence.
Perfect wording......Even In wildest dream they should not think of taxing freezone....that what is the meaning of freezone ?
May some lazy official write down rules in hurry.....wait and watch
I also can imagine that there will be some way around this, like Malta's 35% head corporate tax rate, which nobody pays, but looks good on paper.
For now, you can just pay out a high salary. Or just an offshore company with a nominee and receive dividends.
For now, you can just pay out a high salary. Or just an offshore company with a nominee and receive dividends.
From My research, For long term Viable solution with zero tax , I find Singapore company will be emerge as Best alternative to Dubai Freezone.....In Singapore there will be no tax if you do not bring money to Singapore ....Even for less than S$10 million income there will be not audit requirement....Yes It cost money.....But As Dubai become unattractive ...Singapore will be best solution with international income.....I am not expert ....Just find about some facts...... May @Sols put some light on this facts .....and how viable It is in practical world ? Is it workable or not ?
This is something I had posted before but marked as nonsense. Just as everywhere, substance means real substance, not just some fake office and nominees. This setup may work in Dubai (for now) but the veil will be pierced by any other jurisdiction if you have related companies or reside somewhere else.
Running a business without substance is meaningful if well structured and has no PE or related business with other tax authorities you are operating from. If you are in Dubai for one month a year running a business from Europe and no substance, once they get aware of that you are done.
A Dubai tax rate of 9 pct rate is still one of the lowest worldwide, where average CIT is 20-30pct and if you want to withdraw money as personal income or dividend another 15-50pct is taxed.
Expect in the next years everywhere some direct or indirect tax increases with the deficits countries are running and the economies soon landing into a recession.
Nonetheless with tax authorities getting more and more agressive it is better to have substance and to pay a low tax rate. Some countries such as Hong Kong also allow a lot of expenses that can be booked. Offshore at 0pct taxation for normal business operations is not anymore recommended in these ages where all information is exchanged and digitally available.
Running a business without substance is meaningful if well structured and has no PE or related business with other tax authorities you are operating from. If you are in Dubai for one month a year running a business from Europe and no substance, once they get aware of that you are done.
A Dubai tax rate of 9 pct rate is still one of the lowest worldwide, where average CIT is 20-30pct and if you want to withdraw money as personal income or dividend another 15-50pct is taxed.
Expect in the next years everywhere some direct or indirect tax increases with the deficits countries are running and the economies soon landing into a recession.
You mean Singapore has a territorial tax system? I believe this is not easy to apply for in Singapore. There are still plenty of other jurisdictions such as Hong Kong, which is much cheaper to set up and maintain, as well easier to apply as offshore setup.
Nonetheless with tax authorities getting more and more agressive it is better to have substance and to pay a low tax rate. Some countries such as Hong Kong also allow a lot of expenses that can be booked. Offshore at 0pct taxation for normal business operations is not anymore recommended in these ages where all information is exchanged and digitally available.
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That is not correct information.
Singapore does not tax income which was not remmited to Singapore just in case if it was taxed in a country with which Singapore has DTT with tax rate at least 15.00 %. Singapore is not a tax heaven.
Yes, but for certain people, we still have an area where we can remain as tax residents of nowhere. Think of a citizen of the Bahamas (with a Bahamian passport) who doesn't live full-time in the Bahamas and travels around. Has NO home overseas, except in the Bahamas. He may NOT even be a tax resident of the Bahamas due to traveling +11 months out of the year. Sometimes, this person doesn't return home for 3 years.
This person really has NO tax liability anywhere, whether the tax-exempt parasites at the OECD like it or not. Wouldn't you agree?
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