Would being a UAE resident pull my tax-free companies into tax / regulatory framework of the UAE?

[OKboomer]

This is a two-point question.

If I were to live in the UAE and I own and/or manage companies in zero-tax jurisdictions, would my companies, on the grounds of my residency in the UAE be considered as Controlled Foreign Companies and:

1) I would be obliged to pay the 9% tax on income of those companies ?

2) those companies might be subject to UAE rules/regulations ? (For instance if these companies do stuff related to crypto which has more and more restrictions and regulations in the UAE)

And are arrangements on paper (appointing a director / ceo) sufficient, or would any effective / de facto control be deemed as effective management with the same consequences?

Maybe some folks have already experienced this? Curios to hear more. Thanks

 

[Martin Everson]

1) I would be obliged to pay the 9% tax on income of those companies ?

Yes

-----

Under the Corporate Tax regime, Foreign Companies which have in the UAE

1. Their Permanent Establishment (‘PE’) ; or
2. Their Place of Effective Management ; or
3. Their source of income

will be subject to UAE Corporate Tax at the rate of 9% on annual taxable income exceeding AED 375,000 attributable to UAE business operations and activities.

-----

2) those companies might be subject to UAE rules/regulations ? (For instance if these companies do stuff related to crypto which has more and more restrictions and regulations in the UAE)

No

And are arrangements on paper (appointing a director / ceo) sufficient, or would any effective / de facto control be deemed as effective management with the same consequences?

Full arms length setup with economic substance PE, management etc etc. We are talking UAE here not EU. They don't slap people on the wrist for violation of their laws rather cut of wrists proverbially speaking.....lol.

 

[GF150]

Under the Corporate Tax regime, Foreign Companies which have in the UAE

1. Their Permanent Establishment (‘PE’) ; or
2. Their Place of Effective Management ; or
3. Their source of income

will be subject to UAE Corporate Tax at the rate of 9% on annual taxable income exceeding AED 375,000 attributable to UAE business operations and activities.

Yes, that's the first step. I believe that has something to do with the deal for removing the UAE from some black/gray list.
But what comes next ? Probably they will tax the off-shore, then they will lower the threshold over time. The other important issue is this one: how can they know your taxable income ? You have to state it. And how can they know you will tell the truth ? Some kind of control, of course. Hence, as things "logically" call for one another in most of the countries, accounting will become mandatory..... So, we start to part with: "The UAE is for makers, not for paper shufflers" - an official punchline less than a decade ago.

 

[Martin Everson]

The other important issue is this one: how can they know your taxable income ? You have to state it. And how can they know you will tell the truth ?

Good question...perhaps they can ask for an audit report for foreign company . But would you be happy in any case committing tax fraud in UAE by lying to the UAE government while stood on their soil? In UAE laws are applied withut mercy sadly i.e

https://newsone.com/409392/brit-jailed-in-dubai-for-4-years-for-speck-of-marijuana-on-shoe/

 

[GF150]

But would you be happy in any case committing tax fraud in UAE by lying to the UAE government while stood on their soil? In UAE laws are applied without mercy sadly i.e

No, of course, I wouldn't ! I believe you are an experienced and knowledgeable person and can easily get my point of view which is slightly different: moving from the EU to the UAE isn't only for tax purposes. It's more general. The UAE was strongly promoted in the past as "business-friendly". To put things otherwise: "Do your legal business. Make your money. Invest here if you so wish and I won't be staying in your way and charge you with BS". When there are no taxes, accounting is Company's own business and the Government will not put their hands in it - none of their business. Even with a small tax, things change radically, by necessity. You have to state your income and it is to be calculated following a specific pattern (Accounting plan), that must be laid out by the Government. No need to say where all that leads, let alone the fact that there can (and will) be many forms of discrepancy, leading, in their turn, to conflicts to be (hopefully) solved by accountants and lawyers. In other words, that's when the s**t hits the fan!!

 

[CrazyPanda]

In the UAE, the first $100,000 of income is exempt from corporate tax also they allow a salary of $20,000 per month to be earned completely tax-free. This results in an effective tax-free threshold of $340,000. Beyond this, only a 9% corporate tax applies, with no personal income tax.

The UAE’s tax policy invites with the promise of paying zero tax on the first $340,000, followed by a modest 9% tax rate thereafter. In my opinion, this makes dealing with problematic zero-tax offshore jurisdictions unnecessary.

 

[GF150]

Yes, I agree with you. For modest businesses, the main burden seems to be not the tax itself but what the taxation process will call for,
one thing leading to the next, as pointed out in #5. We can only hope that this corporate tax is just for the show-room and that the UAE
Government will not be willing to really enforce it in a strict EU/USA-style manner.

 

[Martin Everson]

Ok we strayed a little from OP's questions. Lets keep to answering his questions .

 

[OKboomer]

We can only hope that this corporate tax is just for the show-room and that the UAE
Government will not be willing to really enforce it in a strict EU/USA-style manner.

Do you really believe that? The level of technological advancement of the public sector in the UAE is light-years ahead of most of the EU. Why would they not enforce that?

 

[GF150]

Do you really believe that? The level of technological advancement of the public sector in the UAE is light-years ahead of most of the EU. Why would they not enforce that?

Because I believe that they don't need this tax. They did very well without it so far. Why kill the goose that lays golden eggs ?
I believe, as previously stated, that they introduced some measures in order to be removed form the black & grey list, as per some undisclosed agreement. As for tax enforcement, it's another ball game. You have to build from scratch a whole Tax Administration with thousands of trained agents, etc., etc. In the present situation, they cannot check Company's profit, as for many of these the accounting isn't mandatory and they just don't maintain any. Either the Administration will just accept Company's statements as they are or they'll have to put things right by first enforcing a proper accounting. That was my primary concern, BTW. Accounting is a real pain in the neck (and elsewhere) when you have other fish to fry, believe me.