UAE to introduce 9% corporate tax on business profits from June 1, 2023 (FZCO REMAINS 0%)

[Mike Forman]

"This was revealed by Arslan Mushtaq, Partner Tax at athGADLANG, during an exclusive interview with Gulf Today."

".....Mushtaq added."

".....Mushtaq concluded."

".....Akbar added."

Seems like Arslan Mushtaq knows more then everyone else and even more then the Website from the Ministry of Finance reflects at the moment.

Long story short his point is basically that it's starting 01.06.2023 more then ever pointless - even for a UAE Resident - to have a Seychelles, Belize or BVI Offshore Company instead of a FZCO at 0% CT.

It's the dead of RAKICC and the other Old School Offshore Type of Companies even for the usage of a Holding Company as if it's used as a non-resident Offshore Company you won't get any Bank Account done and as soon as you are Resident the CT applies and no excemptions are in place unklike the Freezone Companies.

Last but not least it's over for the guys with some fake / remote worker Residence Visa and US LLC as already mentioned earlier here in the forum it was obviously that this won't be a sustainable longterm solution.

Congratulations so far to all our existing clients so far - you made everything right and things remain like they are.

“The freezones have robustly supported the UAE economy by attracting Foreign Direct Investment and offering ease of doing business. The CT regime has outlined the businesses operating in the freezones will be subject to the CT regime and meet the compliance obligation like registering and filing the CT return. However, the CT regime will honor the 0% tax incentive if freezone businesses maintain adequate substance and comply with all regulatory requirements. The freezone business can benefit from a 0% CT rate on income earned from transactions with businesses located outside of the UAE, income from trading with businesses located in the same or any other freezone, and income from certain regulated financial services from foreign markets.”

So your bottom line is filling a CT return which we will provide free of charge for our existiing clients - it's even becoming more attractive then ever using a FZCO as a Holding Company as well.

Well done UAE!

With adequate substance you will need your own office, staff, utility bills.

If you don't have that its in my opinion only a matter of time they will find out and tax you. So better have this in order. For those who don't have this substance it would be an additional cost of several thousands of USD a month,which makes UAE less attractive if you have a moderate income.

 

[GPT]

Dubai is telling me they step in line with OECD and a lot of other major initiatives to combat tax avoidance without telling me directly…

 

[JackAlabama]

"A foreign business will trigger a PE in the UAE if it has a fixed place in the UAE from which the business is carried out wholly or partly. Typically, a place of management, a branch, an office, a factory, a workshop, real property, and a building site where activities are carried on for over 6 (six) months are considered a fixed place.”"

This part is also noteworthy as most people do not spend 6 months in UAE anyways.

 

[Marzio]

This part is also noteworthy as most people do not spend 6 months in UAE anyways.

Are you saying that by spending less than 6 months in UAE you will not trigger PE in UAE so no 9% CIT will apply?

 

[JackAlabama]

Are you saying that by spending less than 6 months in UAE you will not trigger PE in UAE so no 9% CIT will apply?

It can be interpreted in that way. But seems also logic since they follow this center of life and time counting approach many countries in Europe do.

But I am not saying that since no one can know such a detailed fact 1 or 1.5 years ahead of it becoming relevant. Gotta wait and see as we approach next year.

 

[Marzio]

Just as a refresher, you are considered UAE resident if you spend only 1 day in UAE every 6 months, is that still valid?

 

[JackAlabama]

Just as a refresher, you are considered UAE resident if you spend only 1 day in UAE every 6 months, is that still valid?

But not tax resident, which is different. There are permits which consider you resident even if you are absent for years, does not mean you need to pay tax there.

Also the guy in the article did not mention anything about 1 day at all.
So why do you think this has relevancy?

 

[Fred]

With adequate substance you will need your own office, staff, utility bills.

If you don't have that its in my opinion only a matter of time they will find out and tax you. So better have this in order. For those who don't have this substance it would be an additional cost of several thousands of USD a month,which makes UAE less attractive if you have a moderate income.

This is the norm even now with having proper substance to get a Business Bank Account done - we get this done for every client - we are no wizzard we just bring the necessary substance to the table and therefore the clients getting Buisness Bank Accounts left and right.

Speaking about couple of thousands USD per month is somewhat of bull****. You get in Authority Buildings 9sqm dedicated office under lock key unfurnished for 500 USD per month including your own Etisalat Landline.

Further this is not even necessary - make yourself familiar with the matter if you are really interested in otherwise you are loosing opportunity with wrong informations followed by wrong assumption.

Dubai is telling me they step in line with OECD and a lot of other major initiatives to combat tax avoidance without telling me directly…

Yes UAE won't be another Seychelles but Singapore - if they wouldn't move in this direction anyway - the banks would have to do it no matter what.

 

[Marzio]

So why do you think this has relevancy?

I wrote resident but in my mind i was thinking about tax residency. Being considered tax resident by spending only 1 day would allow you to manage an offshore company without creating a PE in UAE but as you said residency is one thing and tax residency in another.

 

[CarteBlanche]

Ok so it's not possible then LOL



You don't pay taxes and your weekend starts on thursday. How lucky are those Dubai guys?

Having just taken tax advice in the UK and UAE I can confirm this is possible.

UK company incorporated, with a branch established in a freezone. A branch is an extension of the UK Co, with all transactions and balance sheet remaining the same.

Unlike what was said above, you do not need additional banking, and can continue to use the UK bank/EMIs who for most purposes won’t even know about the dubai branch (as it has no impact on ownership etc.).

For this to work, < 20% of income must derive from UK residents (corporate or natural).

Place of effective management and control will be “in” the freezone, and this not subject to the planned corporate tax.

 

[Jerry1911]

For this to work, < 20% of income must derive from UK residents (corporate or natural).

Where did you (or your tax advisor) get this number from?

 

[Mike Forman]

Having just taken tax advice in the UK and UAE I can confirm this is possible.

UK company incorporated, with a branch established in a freezone. A branch is an extension of the UK Co, with all transactions and balance sheet remaining the same.

Unlike what was said above, you do not need additional banking, and can continue to use the UK bank/EMIs who for most purposes won’t even know about the dubai branch (as it has no impact on ownership etc.).

For this to work, < 20% of income must derive from UK residents (corporate or natural).

Place of effective management and control will be “in” the freezone, and this not subject to the planned corporate tax.

Where does this advice come from? So annual UK company statements will include all the payments of customers on the UK Bank account of that UK Ltd company and this will be just declared as income under the Dubai branch, receive on the UK Ltd company Bank account.

Good luck to get that passed by UK tax authorities. Who pays also the VAT in this case?

 

[Au999]

Also you need to inform UK banks of full business structure, ultimate beneficial owners etc. You can't just open a Dubai branch and keep it on the down low

 

[sergeylim88]

i've been reading official web sites, and i can't find any official information about making foreign a tax resident for ct (ex. director or management is in the UAE, cfc or pe rules).
does anyone have an official source for this?

if this really applies, what would be alternative for Dubai (to be able to keep your offshore(ex. Cayman island/BVI...) companies tax free while managing them from that country)?

 

[lacomaco]

Free zones will remain to use 0% tax

 

[sergeylim88]

i am aware of that.
i asked about case when a resident has a company(that he controls and manages) in other country with 0% corporate tax.
any official source that the company in question will be considered tax resident of UAE for 9% ct?

in case this really happens, what country would be alternative to live in and keep the offshore company and get dividends from it with 0% personal income tax(without the company becoming resident for ct of given country)?

@Fred what are the chances that UAE will enforce the ct on foreign entities controlled by resident person(ex. seychelles company owned and managed by UAE resident)?

 

[Fred]

Well guys as of now:

We have seen on 31st of January 2022 an announcement about 9% CT and a consultation sheet followed shortly after - that's it.

The degree for the CT is overdue since late August - so already 2 months

Rumours already going on everything gets postboned to 01.01.2024.

So the last thing I would worry about now is UAE becoming a 2nd Germany - lol.

Look at Cyprus they have since 2019 CFC rules and don't enforce it at all from all what we have seen with our Cyprus based clients managing from there a Dubai Company without any issues - same goes for clients based in Switzerland etc.

So now think about UAE - I leave it to you.

 

[sergeylim88]

makes sense to be honest
thanks for your kind input

edit:
those clients residents of switzerland and cyprus, are they listed as directors of the fzco in Dubai?

 

[Martin Everson]

UAE sourced income and application of corporate tax on it​

https://www.khaleejtimes.com/business/uae-sourced-income-and-application-of-corporate-tax-on-it
Good examples given for clarity purposes.

 

[JackAlabama]

UAE sourced income and application of corporate tax on it​

https://www.khaleejtimes.com/business/uae-sourced-income-and-application-of-corporate-tax-on-it
Good examples given for clarity purposes.

"Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official but a personal opinion of the writer based on the UAE corporate tax law. For any queries/clarifications, please write to him at [email protected]"