Legal
Country code – AE
Legal Basis – Common law for corporate matters.
Legal framework – Each Freezone has its own corporate regulations.
Company form – Limited Liability Company
Liability - The liability of the shareholders is limited to their unpaid amount of their shareholdings.
Permitted Business Activities – A company business activity must be approved by the relevant Freezone Authority and the company must obtain a trade license, and in the case of regulated activities (e.g. financial services, virtual asset services, etc), a regulatory license by the relevant financial services regulator (e.g. FSRA in the ADGM, DFSA in the DIFC, SCA, VARA, etc). Each Freezone offers commercial licenses for specific activities.
A trade license is issued upon incorporation of the company. This document allows the company to conduct business in the relevant Freezone in accordance with the approved activities stated in the trade license. The license is valid for one year and renewable upon filing the relevant form, paying the relevant fee to the relevant Freezone Authority and completing other applicable requirements for trade license renewal.
Companies incorporated in Freezones can conduct business and trade within the Free Zones and internationally, but cannot do business with UAE residents out of the Freezones, without a UAE resident intermediary.
Business Residence Visas - A Freezone company may sponsor 2-year business residence visas in the UAE to its foreign directors and employees. The number of business residence visas that a company may sponsor is generally subject to the license package and the size of the office of the company.
Share Capital – The share capital requirements vary depending on the specific Freezone as well as the specific activities of the Freezone company. For instance, for unregulated activities:
- Dubai International Finance Center (DIFC) - No minimum share capital.
- Dubai Internet City (DIC) - Minimum share capital requirement amounts to AED 50,000 (USD 13,698). Share capital needs to be deposited into company's bank account within 1 year.
- Dubai Multicommodities Centre (DMCC) - Minimum share capital of AED 50,000 (USD 13,615), which must be paid up within 6 months from the company registration date.
- Dubai World Trade Centre (DWTC) - There is no minimum share capital. The paid-up capital is only mandatory if the intended share capital is more than AED 300,000 (USD 82,000)
- Dubai Silicon Oasis / Dubai International Freezone Authority (DSO / IFZA) - AED 10,000 (USD 2,725). Share capital may be unpaid.
- Ras Al Khaimah Economic Zone (RAKEZ) - AED 100,000 (USD 27,250), which may be unpaid.
- Abu Dhabi Global Market (ADGM) - No minimum share capital.
Shareholders – A Freezone company may be incorporated by one or more shareholders, who can be either a corporation or a natural person, resident or non-resident.
Directors – In most Freezones, companies must have at least one director who must be a natural person, resider or nonresident. Most Freezones require the appointment of at least one Manager.
Secretary – In most Freezones, the appointment of a company secretary is not mandatory. Secretary may be an individual or corporate body.
Economic Substance - Companies carrying on the following activities only are required to be directed and managed from the UAE, have local offices, employees and expenditures, and conduct its core-income generating activities from within the UAE.
- banking i.e. banking business
- insurance i.e. insurer
- finance and leasing i.e. business of providing financing or leasing of assets
- fund management i.e. management of collective investment schemes
- distribution and service center business i.e. reselling goods to affiliated companies or providing services to affiliated companies. Affiliated company is defined as a company which is part of the same group structure (e.g. parent-subsidiary, sister entity with common parent company, etc).
- headquartering i.e. providing management services to affiliated companies
- intellectual-property business i.e. holding and exploiting IP assets, generating identifiable revenue from such assets. Please note that the provision of services for developing IP assets or holding or using IP assets for ordinary commercial or service business is not considered an intellectual property business. IP businesses are those that generate separate and identifiable revenue from IP assets (e.g. patent licensing).
- shipping i.e. transportation by sea, management of ship crew, sale of travel tickets
- and holding company business i.e. pure equity holding company, a company that only holds controlling shares in subsidiaries (subject to a limited economic substance test, whereby the company is not required to be managed locally, or conduct any income-generating activity locally).
Registered Office / Physical Office – A company must have at all times a registered office. It is the physical location to which all communications and notices may be addressed. The registered address must be located in the specific Freezone where the company is formed, for instance -
- Dubai International Finance Center (DIFC) - Physical office space must be maintained.
- Dubai Internet City (DIC) - Physical office space must be maintained.
- Dubai Multicommodities Centre (DMCC) - Physical office space must be maintained.
- Dubai World Trade Centre (DWTC) - Physical office space must be maintained.
- Dubai Silicon Oasis / Dubai International Freezone Authority (DSO / IFZA) - Companies are not required to have a physical office space, and can opt to 3 business residence visas without such physical office space.
- Ras Al Khaimah Economic Zone (RAKEZ) - Physical office space must be maintained.
- Abu Dhabi Global Market (ADGM) - Physical office space must be maintained.
Acceptable physical offices spaces go from shared offices (e.g. "flexi-desks") to full private office suites. Licenses for certain business activities may require a specific type / size of office.
General Meeting – In most Freezones, annual general meetings are not mandatory.
Electronic Signature – Permitted.
Re-domiciliation – Inward/outward re-domiciliation is not generally allowed in most Freezones.
Compliance – Companies must submit tax returns with the UAE Federal Tax Authority within 9 months from financial year end.
From a financial reporting and accounting compliance perspective, requirements largely depend on the specific Freezone, for instance -
- Dubai International Finance Center (DIFC) - Financial statements must be prepared annually. An auditor must be appointed to file audited financial statements for companies with 20 or more shareholders or an annual turnover of USD 5,000,000 or greater.
- Dubai Internet City (DIC) - Audited financial statements are required to be filed with Free Zone Authority within 6 months from financial year end.
- Dubai Multicommodities Centre (DMCC) - Audited financial statements must be prepared and filed with tge Free Zone within the next 6 months after the end of every financial year.
- Dubai World Trade Centre (DWTC) - Companies must appoint an independent auditor, and financial statements together with an auditor report must be prepared annually within 6 months from the financial year end.
- Dubai Silicon Oasis / Dubai International Freezone Authority (DSO / IFZA) - Companies are not required to have a physical office space, and can opt to 3 business residence visas without such physical office space.
- Ras Al Khaimah Economic Zone (RAKEZ) - Companies must produce audited financial statements annually, but these do not need to be filed unless there is a specific request from the RAKEZ Authority or the UAE Federal authorities.
- Abu Dhabi Global Market (ADGM) - Companies must file with the ADGM Authority the below -
- For companies whose turnover is not greater than USD 13.5 million, a statement of financial position;
- For all the other companies, audited financial statements.
- Shareholders not disclosed
- Directors not disclosed
- Corporate shareholders permitted
- Corporate directors permitted
- Local director required
- Secretary required
- Local secretary required
- Annual general meetings required
- Redomiciliation permitted
- Electronic signature
- Annual return
- Audited accounts
- Audited accounts exemption
- Exchange controls
- Common law for corporate matters Legal basis
- 1 Minimum shareholders
- 1 Minimum directors
- Varies Minimum issued capital
- Varies Minimum paid up capital
- AED Capital currency
- Anywhere Location of annual general meeting
- 2018 AEOI
Taxes
Tax Residency - Companies that are incorporated or otherwise formed or recognised under the laws of the UAE will be considered a resident person. This covers companies incorporated in the UAE under either mainland legislation or applicable Free Zone regulations.
Companies incorporated overseas that are effectively managed and controlled in the UAE may also be deemed tax resident in the UAE.
Basis - Companies are subject to corporate tax on their worldwide income.
Tax Rate – UAE Freezone companies are subject to tax as follows, provided that they elect to be treated as Mainland entities for tax purposes -
- 0%, for taxable income not exceeding AED 375,000;
- 9%, for taxable income exceeding AED 375,000; and
- 15% for Multinational Enterprises (Groups with revenues over AED 3.15 billion)
If the UAE Freezone company does not elect to be treated as a Mainland entity for tax purposes, then, the company will be subject to 9% corporate tax regardless of the level of taxable income, unless the company is a Multinational Enterprise (in such case, 15% corporate tax applies)
UAE Freezone companies that do not elect to be treated as a Mainland entity for tax purposes and are not Multinational Enterprises may qualify for a 0% tax rate subject to compliance with certain requirements as follows -
- economic substance requirements in the UAE as long as such companies transact with non-UAE counterparts or other Freezone/offshore companies (i.e. they are directed and managed from within the UAE, they have adequate premises and employees in the UAE, and carry out their core-income generating activities from within the UAE),
- have not made an election to be taxed at standard corporate tax (see above),
- derive qualifying income
- their accounts are audited by an independent auditor,
- comply with transfer pricing requirements, and
- comply with additional conditions as prescribed by the Minister.
Additional condition prescribed by the Minister includes complying with the De Minimis Requirements. The de minimis requirements shall be considered satisfied where the non-qualifying Revenue derived by the Qualifying Free Zone Person in a Tax Period does not exceed 5% of the total Revenue of the Qualifying Free Zone Person in that Tax Period or AED 5,000,000, whichever is lower.
When it comes to deriving qualifying income, the above-mentioned Ministerial Decision defines the same as -
- Income derived from transactions with other free zone Persons, except for income from ‘excluded activities”
- Income derived from transactions with any person - domestic and foreign - in the case of “qualifying activities’, except for income from excluded activities.
When it comes to qualifying activities, these are as follows -
- Manufacturing of goods or materials;
- Processing of goods or materials;
- Holding of shares and other securities;
- Ownership, management, and operation of ships;
- Reinsurance services;
- Fund management services that are subject to the regulatory oversight of the competent authority in the UAE;
- Wealth and investment management services that are subject to the regulatory oversight of the competent authority in the UAE.
- Headquarter services to related parties;
- Treasury and financing services to related parties;
- Financing and leasing of aircraft,
- Logistics services;
- Distribution in or from a designated zone that meets the relevant conditions;
- and any activities that are ancillary to the above-mentioned activities.
Excluded activities include -
- Income derived from transactions with individuals;
- Income derived from certain regulated financial services activities;
- Income derived from intangible assets;
- Income derived from immovable property, other than transactions with free zone enterprises in relation to commercial immovable property located in a free zone.
Capital Gains - Capital gains from the disposal of capital assets are treated as ordinary income and subject to corporate taxes.
Dividends - Dividends from resident companies are generally exempt from corporate income tax. Dividends from foreign companies is exempt from tax if:
- the shareholding is at least 5%
- a 12-month uninterrupted holding period (or the intention to hold for 12 months) is in place
- the participation is subject to tax in its country or territory of residence at a rate that is not lower than 9%, and
- not more than 50% of the assets directly or indirectly owned by the participation consist of an ownership interest or entitlements that would not qualify for the participation exemption if these assets were held directly by the taxable person.
A shareholding of less than 5% may qualify for the exemption where the acquisition cost of the shares exceeds AED 4 million.
Withholding Taxes - There are no withholding taxes on payments of dividends, interests and royalties to nonresidents.
Foreign-Source Income - A company may elect to have profits from a foreign permanent establishment exempt from tax. Such exemption is available as long as such profits are subject to foreign taxes at a rate not less than 9% in the foreign jurisdiction. Losses, income, expenditure, and foreign tax credits in relation to the foreign permanent establishment will not be deductible for UAE tax purposes if the tax exemption is elected.
Anti-Avoidance Provisions - Transactions between related parties must comply with the arm’s-length principle. Transfer pricing documentation must be prepared if
- the taxable person is part of a multinational enterprise (MNE) group with a total consolidated group revenue of at least AED 3.15 billion in the relevant tax period, or
- the taxable person has revenues of at least AED 200 million or more in a relevant tax period.
VAT – VAT of 5% applies to sales of goods and services in the UAE, including the import of services and goods. The export of services is generally zero-rated.
Generally, services which are taxable if provided within UAE then the same needs to be considered as VATable if received from a service provider located outside of UAE (import of services) under reverse charge mechanism, meaning that the recipient of the service in the UAE must pay VAT for such service.
If a FZ company provides services from its place of business in the UAE to a person whose place of establishment or fixed establishment is outside the UAE, it becomes an export of service, and is generally exempt from VAT.
Other taxes – In U.A.E. there is no personal income tax, capital gains tax, real property tax, inheritance tax or estate duty, capital transfer tax, gifts tax or wealth tax.
There is a real property tax levied on the transfer of properties, at rates that vary from 2% to 4%, depending on the Emirate where the property is located. Some municipalities, e.g. Dubai, also levy an annual property tax on the assessed rental value of the property.
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- 9% Offshore Income Tax Rate
- 9% Corporate Tax Rate
- 9% Capital Gains Tax Rate
- 9% Dividends Received
- 0% Dividends Withholding Tax Rate
- 0% Interests Withholding Tax Rate
- 0% Royalties Withholding Tax Rate
- 0% Personal Income Tax Rate
- 5% VAT Rate
- 76 Tax Treaties
Country details
The United Arab Emirates is a former British protectorate and currently a federation of the Middle East, located to the east of the Arabian Peninsula. It borders Oman to the southeast, with the Persian Gulf to the north and Saudi Arabia to the west and south. It is composed of a hybrid monarchy consisting of 7 emirates, Abu Dhabi, Ajman, Dubai, Fujairah, Ras al Khaimah and Umm al Qaywayn.
It has a population of 9 million. Its capital is Abu Dhabi, but the most populated and popular city is Dubai. Arabic and English are their official languages. The official currency is the United Arab Emirates Dirham (AED), pegged to the US dollar at an exchange rate of 3.67:1.
The Supreme Council, made up of each emirate Sheikhs, is the highest political decision-making body in the country. Although each Emirate retains a considered political, economic and judicial autonomy, with different rules and regulations.
The federation is one of the richest countries in the world, supported by a liberal and open economy with the eighth highest per capita income worldwide and a considerable annual trade surplus.
Having the seventh largest oil reserve in the world, its economy is clearly dependent on this commodity fluctuations. In recent years efforts have been made to diversify the economy, be less oil-dependent and develop sectors such as retail, financial and tourism.
Tax treaties
Tax treaties Map
Services
Please, contact us to request a free, no obligation consultation.