The United Arab Emirates are a federation consisting of seven emirates, located in the south-eastern part of the Arabian Peninsula. The country is often called “the new Switzerland” because of the tax-free or low-tax company-forming possibilities. The country’s traditional source of income is oil, but other industries have also been established (financial sector, tourism), to diversify their economy and not depend entirely on one single industry.
In the past years, companies formed in the United Arab Emirates have become very popular. More and more businessmen choose the country with the aim of forming a company, as the possibility of full tax exemption is available both on the individual and corporate level.
Companies with different statuses and their characteristics that can be created
- Companies can be formed with three different legal statuses in the United Arab Emirates:
- mainland company,
- free zone company, and
- international business company.
Mainland company characteristics in Dubai
The mainland company was previously less popular with foreign investors, as it was obligatory for the majority owner to be a local citizen. The Emirates, however, have made significant facilitations in this area in 2019, due to which the investors can enter the domestic market of the country with much less restrictions than before. Care should still be taken that for the mainland companies, financial reports must be prepared and handed in to the competent authority.
The free zones are not simple tax havens. They have created commercial-, tax-, and knowledge centers here that provide opportunities to foreign investors in different industries. There are more than forty existing zones, and more are being created. Companies established in the different zones may not carry out business activity outside of the zone, i.e. in other areas of the United Arab Emirates, without special permission. A company established in a free zone may apply for a residential visa (temporary residence permit) and an internationally recognized tax residency certificate for the foreign owners / directors / employees.
Advantages and requirements of free zone formation in Dubai
The free zones have their own tax system and do not tax profits, and do not tax the wages of the employees working there. In certain zones, it is not mandatory for the shareholders to pay the registered capital of a company. It is enough for the company to have a natural person manager (managing director) and a shareholder. These persons may be 100% foreign.
Among the many free zones in the United Arab Emirates, the Umm Al Quwain Free Zone provides some of the best conditions for foreign investors.
Umm Al Quwain Free Zone
Umm Al Quwain (UAQ) is geographically located between Ajman and Ras Al Khaimah, both also very popular. Its central position, among other, makes it an ideal location, as well as the possibility to achieve a high standard of living at reasonable prices, and the high quality of the service sector. UAQ is “the free zone of the future”, as it provides exciting business opportunities in a safe and stable environment, just under 1 hour away from Dubai International Airport, alongside the country’s most important ports.
Another argument in favor of UAQ is that there is no obligation to pay the registered capital here, there is no need to prepare reports and tax returns. In the case of a company registered in the free zone, it is possible for the investors to obtain a residence permit for 3 years (owners) or 2 years (directors, employees).
Advantages of an international business company in Dubai
The international business company usually only has a registered office, and may not do business locally, meaning that it may only carry out its business activity outside of the Emirates.
These companies do not have to pay taxes on their profits either. As the international business companies to not have to pay taxes on their profits, they do not have to prepare reports or tax returns to the local authorities either. Besides the favorable tax environment, the flexibility of the local rules greatly helps company forming and operation. It is not mandatory for the shareholders to pay the registered capital of the company. It is enough for the company to have a natural person director and a shareholder, who may also be foreign persons.