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

[JustAnotherNomad]

But even if until 2025, will they have to pay retroactively for 2023-2024 I assume?

It depends on the financial year of the company. If the company has a Jan-Dec financial year, corporate tax only applies from Jan 2024.
Then by the end of September 2025, their declaration and payment of the corporate income tax for Jan-Dec 2024 would be due.

For companies with a financial year July-June, corporate income tax would apply from July 2023, and then corporate tax would again be due 9 months after July 2024 (too lazy to do the math).
At least that's how I understood it.

 

[meze99]

Is there an official statement with an explanation which kind of free zone company is eligible for small business relief (I guess it depends on the trade license)?
As far as 9% corporate tax is concerned, will it be applied to Remote Worker Visa holders?

 

[JustAnotherNomad]

Is there an official statement with an explanation which kind of free zone company is eligible for small business relief (I guess it depends on the trade license)?

Doesn't it only depend on the profit and revenue? Yesterday or so they also clarified that there is no corporate tax if the revenue is below AED 1M.

As far as 9% corporate tax is concerned, will it be applied to Remote Worker Visa holders?

I don't think they have decided yet.

 

[stivemoose]

I am planning to relocate to Dubai in the coming months and obtain a freezone visa and company. However, I do not intend to use this company as all my trading activities will be conducted through an LLC based in the US. I work remotely and my business is entirely digital, with no trading activities taking place in the UAE. Is this setup still valid?

 

[Fred]

Doesn't it only depend on the profit and revenue? Yesterday or so they also clarified that there is no corporate tax if the revenue is below AED 1M.



I don't think they have decided yet.

All information correct - @JustAnotherNomad is so far understanding things in the right way - don't mix up things or think that some Freezones across Dubai are seen different from FTA in regards to CIT.

Small Business Relief is for Freezone Companies below 3M AED.

Every day things are becoming more clear and we keep on working something out for a streamlined process.

I am planning to relocate to Dubai in the coming months and obtain a freezone visa and company. However, I do not intend to use this company as all my trading activities will be conducted through an LLC based in the US. I work remotely and my business is entirely digital, with no trading activities taking place in the UAE. Is this setup still valid?

Of course.

 

[stivemoose]

All information correct - @JustAnotherNomad is so far understanding things in the right way - don't mix up things or think that some Freezones across Dubai are seen different from FTA in regards to CIT.

Small Business Relief is for Freezone Companies below 3M AED.

Every day things are becoming more clear and we keep on working something out for a streamlined process.


Of course.

Thanks, @Fred, for your response. In your opinion, based on the latest news we have from June, will I have to pay the 9% on dividends from my company? Additionally, could Dubai pose any issues since I am running an LLC company from Dubai?

 

[bedouin]

If people have to pay 9% on dividends, then many people are packing their bags to flee dubai forever, me included.

 

[Fred]

Thanks, @Fred, for your response. In your opinion, based on the latest news we have from June, will I have to pay the 9% on dividends from my company? Additionally, could Dubai pose any issues since I am running an LLC company from Dubai?

No.

If people have to pay 9% on dividends, then many people are packing their bags to flee dubai forever, me included.

Correct.

 

[JustAnotherNomad]

I am planning to relocate to Dubai in the coming months and obtain a freezone visa and company. However, I do not intend to use this company as all my trading activities will be conducted through an LLC based in the US. I work remotely and my business is entirely digital, with no trading activities taking place in the UAE. Is this setup still valid?

Valid yes. If there will be UAE tax - not clear. Probably not. I don't think they have really even considered such scenarios.

 

[algotrader]

Doesn't it only depend on the profit and revenue? Yesterday or so they also clarified that there is no corporate tax if the revenue is below AED 1M.

That depends not only on the revenue but whether your company is considered a "qualified freezone person" or not. It applies to mainland companies for sure but you need to apply for SBR.

Conditions​

The Small Business Relief only applies to a “Resident Person”. This is defined broadly, incorporating a managed and controlled test and an incorporation test, both of which derive from international tax principles.

The legislation precludes a Resident Person who claims Small Business Relief from claiming various other reliefs and deductions in the same tax period.

The following are precluded from making a Small Business Relief election:

• a Constituent Company of a Multinational Enterprises Group with a consolidated revenue exceeding AED 3.15 billion; and
• a Qualifying Free Zone Person (i.e. a legal person incorporated, established or otherwise registered in a Free Zone).

Article 21 of the Corporate Tax Law specifies that Small Business Relief must be claimed by way of an election. As such, it does not apply automatically. Regardless of whether the relief is claimed, Taxable Persons will be under an obligation to register for and file corporate tax returns. It would be reasonable to assume that the Small Business Relief election would be made as part of the annual corporate tax return filing process, however, at this stage the procedure for making the election has yet to be confirmed.

https://cms-lawnow.com/en/ealerts/2023/04/uae-corporate-tax-small-business-relief-criteria

 

[stivemoose]

So, to summarize, if I were to relocate to Dubai and engage in trading with an LLC based in Delaware, for instance, and at the end of the year, I receive dividends from the LLC into my personal bank account in Dubai, would this still be tax-free and legal?

Or is there something I am overlooking? I have heard that the new law has made things more complex, but if it does not affect my current setup, then I am happy with it. Thank you.

 

[JustAnotherNomad]

So, to summarize, if I were to relocate to Dubai and engage in trading with an LLC based in Delaware, for instance

Just a side remark: You're probably thinking of a single-member LLC that is treated as a disregarded entity and that pays no tax in the US. There is no need to incorporate in Delaware for this, it works just as well with many other states (Florida, Wyoming, Nevada, ...).

and at the end of the year, I receive dividends from the LLC into my personal bank account in Dubai,

Unless you have elected for the LLC to be taxed as a corporation, I don't think that LLC can pay dividends, since it's a disregarded entity. Well, unless it is treated as a UAE company, in which case it may have to pay tax in the UAE.

would this still be tax-free

As has been mentioned about 100 times now, this has not been clarified yet. In theory, it is definitely possible that the US LLC has to pay 9% corporate tax in the UAE and that there will be steep fines for failing to register for this. Will it be enforced in the near future? Highly unlikely. It is even unclear if they have really even considered such cases, they probably have bigger fish to fry at the moment.

and legal?

This probably mostly comes down to whether you need a license for that activity. The whole legal situation in the UAE is very unclear. Many people have such a setup, so at least they don't really seem to care that much.

 

[stivemoose]

Just a side remark: You're probably thinking of a single-member LLC that is treated as a disregarded entity and that pays no tax in the US. There is no need to incorporate in Delaware for this, it works just as well with many other states (Florida, Wyoming, Nevada, ...).



Unless you have elected for the LLC to be taxed as a corporation, I don't think that LLC can pay dividends, since it's a disregarded entity. Well, unless it is treated as a UAE company, in which case it may have to pay tax in the UAE.



As has been mentioned about 100 times now, this has not been clarified yet. In theory, it is definitely possible that the US LLC has to pay 9% corporate tax in the UAE and that there will be steep fines for failing to register for this. Will it be enforced in the near future? Highly unlikely. It is even unclear if they have really even considered such cases, they probably have bigger fish to fry at the moment.



This probably mostly comes down to whether you need a license for that activity. The whole legal situation in the UAE is very unclear. Many people have such a setup, so at least they don't really seem to care that much.

Thanks for your response.

Yes, I am considering setting up a single-member LLC, and both Wyoming (WY) and Delaware (DE) seem like viable options to me. I am aware that LLCs cannot pay dividends, but I'm unsure how they are considered in the UAE. In Portugal, I've heard that an LLC is treated as a corporation, even though technically it's not.

When you mentioned trading as UAE, were you referring to conducting business with clients specifically located in the UAE? Currently, most of my clients are worldwide, and I anticipate having only a few low-value transactions originating from Dubai.

The main objective for me is to avoid using the company in Dubai, as I believe it is not well-suited for my digital business operations.

In theory, by June, we should have more clarity on whether the 9% tax should be paid on LLC profit distributions, corrects?

Thanks a lot for your assistance.

 

[Fred]

As has been mentioned about 100 times now, this has not been clarified yet. In theory, it is definitely possible that the US LLC has to pay 9% corporate tax in the UAE and that there will be steep fines for failing to register for this. Will it be enforced in the near future? Highly unlikely. It is even unclear if they have really even considered such cases, they probably have bigger fish to fry at the moment.

Amen.

 

[Konstanz]

As has been mentioned about 100 times now, this has not been clarified yet. In theory, it is definitely possible that the US LLC has to pay 9% corporate tax in the UAE and that there will be steep fines for failing to register for this. Will it be enforced in the near future? Highly unlikely. It is even unclear if they have really even considered such cases, they probably have bigger fish to fry at the moment.

I would not rely on non enforcement. Let's say you are being investigated by your high tax country of working through this US LLC. Usually in such case they would send bunch of questions to US and to your residence country UAE. And this can start s**t storm.
I would not risk playing with law in UAE. In UAE you can get in trouble for bounced check...
In such country as Andorra yes, you would probably get away with it by showing that not all activity was in Andorra etc. But in UAE you don't know what would happen in case they suspect you had to pay corporate income tax.
It just all depends how lucky you are. But you risk jail in Dubai
Usually is not the low tax country which start looking at things. But the other high tax country and that what starts s**t to hit the fan


Just read E part here:
https://mof.gov.ae/corporate-tax-faq/
Partnerships are highlighted that they will have to pay tax in UAE if they are controlled by UAE residents..

 

[JustAnotherNomad]

In theory, by June, we should have more clarity on whether the 9% tax should be paid on LLC profit distributions, corrects?

I think it will take much longer than that. Might not even be this year, considering that it will take a long time for the first corporate tax payments to be due.

 

[Konstanz]

It will be especially risky if you have EU customers and working through foreign companies in UAE, US LLC similar..
Starting next year there would be new reportings by financial institutions about payments to foreign companies and that could trigger high tax countries to investigate these companies and persons behind them
https://www.ey.com/en_lu/tax/eu-introduces-new-vat-reporting-obligations-as-of-1-january-2024
So, all will have to be crystal clear with residency, proper tax planning etc

 

[Cloudbanck]

Amen.

I would not rely on non enforcement. Let's say you are being investigated by your high tax country of working through this US LLC. Usually in such case they would send bunch of questions to US and to your residence country UAE. And this can start s**t storm.

In what situation would a high tax country start investigating a US LLC though? How would the high tax country even know the US LLC exists in the first place?

Say a situation where one has cut the ties with the high tax country of origin many many years before the US LLC is crested, and only lived in the UAE or other low/no tax countries for decades?

 

[stivemoose]

It will be especially risky if you have EU customers and working through foreign companies in UAE, US LLC similar..
Starting next year there would be new reportings by financial institutions about payments to foreign companies and that could trigger high tax countries to investigate these companies and persons behind them
https://www.ey.com/en_lu/tax/eu-introduces-new-vat-reporting-obligations-as-of-1-january-2024
So, all will have to be crystal clear with residency, proper tax planning etc

Given that the majority of my clients are from the European Union (EU), what potential ideas could be developed to cater to this audience?

 

[bnpsu]

Hey guys, what about using a US partnership instead of a LLC?? Dubai taxes partnerships as pass-through, as if it's personal?

Doesn't it only depend on the profit and revenue? Yesterday or so they also clarified that there is no corporate tax if the revenue is below AED 1M.



I don't think they have decided yet.

Is that for US LLC's as well?