Question UAE Freezone company billing Estonian company - both owned by the same person

[smdzbz]

I am planning to start a company in Estonia. Let's call it EsCo.

I have a free-zone company in Dubai, UAE. Call it DFZCo. I will be moving to Dubai in a few months with a residency visa.

Both EsCo and DFZCo will be 100% owned by me.

I am a freelancer and the purpose of DFZCo is to start billing my freelance customers located outside UAE, move to UAE and over a period of a year become a tax non-resident from the current country I live in.

The purpose of EsCo is to work on non-consulting stuff. Like blogs, courses, ebooks, affiliate marketing, micro-SaaS billing, etc. I have experience is making a tiny income through such activities - but never good enough compared to my consulting income.

Now, to receive money from EsCo, I am thinking of billing EsCo from DFZCo.

Why I do not want to do EsCo activities from DFZCo:
1. UAE has a lot of licensing fees for new activities that I will be "trying". Relatively, the revenue may not be enough to break even these license costs.
2. I have heard about troubles getting good banking in UAE with a free zone co.
3. I believe I cannot bill UAE customers from a freezone co.
4. I, in my own name, do not have a trade license (to draw a salary from EsCo). My understanding is that I can only bill via my owned DFZCo. I may be able to apply for another license - but then it adds to my costs.

If I bill EsCo from DFZCo, ultimately I receive the money. And since UAE does not have any income tax - all the received money is tax free.
That sounds wonderful, but it also sounds like tax evasion. Because if I were to get paid by EsCo, there would have been a 20% tax paid to Estonia.

My intuition is that I should be taxed 20% on the payments made to DFZCo. But not sure how that would occur.

1. My intention is not to wilfully evade tax.
2. I don't mind having zero-tax either (legally).

One legal option is to
(A) Have the EsCo owned by my spouse, and DFZCo bills EsCo
- or -
(B) My spouse, who is on a dependant visa, could take a very low cost freelance UAE license and bills EsCo.

[Obviously the scenario changes if EsCo starts making a lot of money. That is, if that happens in the future]

Thoughts?


P.S: I have already setup the UAE freezone company, and will be fetching my e-residency card within a week

 

[joffreylol]

I believe you can avoid 20% tax from Estonian side by paying yourself employee salary. There shouldn't be any witholding taxes for salaries payed to non resident by Estonia and there is 0 income tax in UAE. I'm not sure if receiving a salary from Estonian company requires any trade licenses, I doubt it applies to individuals (Please check with someone who understands UAE rules). Since Estonian company is run by single member/owner it's not unreasonable to send all your profit as employee salary. You should consider that path imo. Check out Frequently asked questions | Xolo FAQ

 

[sergeylim88]

billing estonian company will be consider capital erosion with the purpose of decreasing taxes
also you if you are billing some services/products that are later sold, that would fall under transfer pricing
i am not sure about tax laws is estonia, but this is a pure example of what you shouldn't do
i recommend that you consult estonian tax lawyer

you could try approach of singing a contract between two companies, so the estonian company handles payment processing for the other one (again speak with tax lawyer to be sure that is legit)

 

[RealDude]

Do your freelance clients accept invoices from UAE? Won't they get in trouble with their tax office?

 

[MiltonStone]

You will have to register both companies with your tax office to avoid troubles. They may be closely related and be treated differently compared to different owners.

 

[rowena]

I believe you can avoid 20% tax from Estonian side by paying yourself employee salary. There shouldn't be any witholding taxes for salaries payed to non resident by Estonia and there is 0 income tax in UAE. I'm not sure if receiving a salary from Estonian company requires any trade licenses, I doubt it applies to individuals (Please check with someone who understands UAE rules). Since Estonian company is run by single member/owner it's not unreasonable to send all your profit as employee salary. You should consider that path imo. Check out Frequently asked questions | Xolo FAQ

This.

 

[smdzbz]

Do your freelance clients accept invoices from UAE? Won't they get in trouble with their tax office?

Yes, I have intimated them about the upcoming change and most have agreed - others only want invoices with my name and bank details.
What kind of trouble could they get into? Worst case, I should be able to bill them through the Estonian company.

I believe you can avoid 20% tax from Estonian side by paying yourself employee salary. There shouldn't be any witholding taxes for salaries payed to non resident by Estonia and there is 0 income tax in UAE. I'm not sure if receiving a salary from Estonian company requires any trade licenses, I doubt it applies to individuals (Please check with someone who understands UAE rules). Since Estonian company is run by single member/owner it's not unreasonable to send all your profit as employee salary. You should consider that path imo. Check out Frequently asked questions | Xolo FAQ

Thank you - I had overlooked this part. Receiving salary might work, however it highlights that I work for my Estonian company (other than Admin/Management). If I work for the Estonian company, the UAE rules are not clear to me (working on that). I know I will need an NOC (from my own freezone company), but not sure whether I also need additional licenses.

 

[sergeylim88]

Do your freelance clients accept invoices from UAE? Won't they get in trouble with their tax office?

why would they?
the freelancer has a valid permit, can issue an invoice
the name of the freelancer doesn't appear in ownership structure of the company that pays the invoice...so no harm there.
only potential issue is that certain countries have witholding tax for all invoice paid to some countries they find as tax heaven, other than that I see no issues. correct me if i missed something.

 

[JimBeam]

Why not just get a freelancer visa/license in Dubai and try what you want to try? (checkout GoFreelance)
Why complicate your life with a company in another country if you don't have to.

 

[rowena]

Why not just get a freelancer visa/license in Dubai and try what you want to try? (checkout GoFreelance)
Why complicate your life with a company in another country if you don't have to.

Freelance licenses will be subject to corporate tax next year regarding FTA.

 

[JimBeam]

Freelance licenses will be subject to corporate tax next year regarding FTA.

Yes, at the rate of 9% while in Estonia he would have to pay 20% dividend tax. (there are differences there of course and it all comes down to math)
But, if he'll be living in UAE I am sure that he can be way more creative with accounting in UAE in order to lower his corporate tax amount.

 

[rowena]

Yes, at the rate of 9% while in Estonia he would have to pay 20% dividend tax. (there are differences there of course and it all comes down to math)
But, if he'll be living in UAE I am sure that he can be way more creative with accounting in UAE in order to lower his corporate tax amount.

Instead, he can go with FZ and enjoy %0 tax.

A GoFreelance license also costs the same as Dubai Freezone company.

 

[sergeylim88]

any source for the 9% tax for freelancers in dubai?
i can't find none

 

[MiltonStone]

You may speak with @Fred
Have a look
https://www.khaleejtimes.com/legal/does-the-uaes-new-corporate-tax-apply-to-freelancers

 

[JimBeam]

from the article above

0% for taxable income up to Dh375,000 (approx. USD 102,000);

9% for taxable income above Dh375,000; and

Even in that case first $100k/year won't be taxed.
So if some freelancer makes $200k/year net revenue he'll pay just 4.5% tax.

 

[RealDude]

from the article above

Even in that case first $100k/year won't be taxed.
So if some freelancer makes $200k/year net revenue he'll pay just 4.5% tax.

Even 4.5% is too much tax

 

[JackAlabama]

Even 4.5% is too much tax

Yes, because there is already a flat tax present by paying these license fees.

 

[joffreylol]

I guess it's hard for this type of freelance company to have expenses (lower CIT)? I assume you can't pay yourself salary with this type of company to avoid CIT, can anyone confirm?

 

[JimBeam]

I guess it's hard for this type of freelance company to have expenses (lower CIT)? I assume you can't pay yourself salary with this type of company to avoid CIT, can anyone confirm?

How about 300 AED/person brunches

 

[rowena]

I guess it's hard for this type of freelance company to have expenses (lower CIT)? I assume you can't pay yourself salary with this type of company to avoid CIT, can anyone confirm?

Yes, there is no salary for freelance/sole proprietorship licenses. We have high salaries in Dubai, especially for high skill and management roles. You can get a $30-50K monthly salary without taxes from your own company.

If you only deal with foreign customers then there is no need to pay high salaries because the whole company tax rate will be 0%.

from the article above

Even in that case first $100k/year won't be taxed.
So if some freelancer makes $200k/year net revenue he'll pay just 4.5% tax.

That is $9.000 a year and even with small turnovers still freelance doesn't make any sense. I own both licenses(freelance and FZ) and the first thing I will cancel my freelance license once they announce CT officially.