Do you look forward to paying your taxes? That’s a question that would make most of us laugh out loud. While we all know what taxes are for, we don’t enjoy paying them, and often, we don’t know or don’t agree with where our money is going.
While taxes on some level are unavoidable, you can take steps to minimize the amount of tax you pay. One of those things you can do is to form your company in a country with a more favorable tax system.
One of the best countries to form a company in is the UAE, and so there’s no better place to form a new company than in Dubai.
Do you have to move to Dubai to form a company there?
You don’t need to be a permanent resident, but you will likely need to spend some time in the UAE each year, and so most people choose Dubai, for reasons we will look at momentarily. The visa you choose will dictate how many days a year you can spend here.
Why Dubai & the UAE?
The Big Picture
Dubai is famous for its ultra-modern buildings, thriving economy, and purposeful design. The city benefits from many green spaces and a higher quality of life than most other cities. Most people in Dubai speak English, so you won’t need to master Arabic just to get by.
Dubai is home to largely high-net-worth individuals, so you’ll be surrounded by wealth and people who conduct themselves (and business) in a certain way. You won’t see homeless people on the streets and crime rates are extremely low compared to other major cities.
The UAE’s rise to financial success has made it a big player on the international stage. As a country, its political system is stable without any extremist views that would make it an undesirable place for a foreigner to reside and trade.
The government here is looking to welcome in more outside investment, and so they’re currently very welcoming to foreign businesses and business people looking to start a business in the UAE. They make it easy to set up, move, and live here. They allow 100% foreign ownership of many types of businesses here in over 13 sectors, including logistics, hospitality, manufacturing, and renewable energy. You can set up a new business in just days.
Easy to Become a Resident
It’s easy to become a permanent resident in Dubai, with the average cost per person of between $10,000 – $14,000 (USD). It’s easy to set up a bank account (for both individuals and businesses).
Because so many people living in Dubai have a high net worth, banks are used to dealing with large sums and will move money quickly and easily, even internationally. The businesses in Dubai are largely focused on making life easier for you and other wealthy clients.
We’ll look at the specifics of taxes in the UAE momentarily, but one of the biggest draws to Dubai is the UAE’s reasonable tax rates. You are free to retain most (if not all) of the money you make in the UAE, and the government is focused on strengthening the economy more than taxing companies for doing so. You don’t pay personal tax on income from any source.
How much corporation tax do you pay in the UAE?
Currently, none – the current corporation tax rate is 0%. That said, the rate is set to rise to a reasonable 9% for businesses with income exceeding 375,000 UAE dirhams (around $102,000 USD) on June 1, 2023. This move is to strengthen the economy and help the country move away from its reliance on its hydrocarbon revenue.
How much income tax do you pay in the UAE?
If you spend more than 6 months of the year in the UAE, you’re considered a tax resident. The good news is, however, that the income tax rate in the UAE is 0%, and that isn’t going to change any time soon. The only income that is taxed is rental income, though this is minimal. There’s also council tax to pay (called property tax in the US).
So I won’t need to pay any tax for my business in Dubai?
No – at least, you won’t until June 1, 2023. However, there are some circumstances where there will be a tax to pay – just not a corporation tax. Here are the other circumstances where a business may be taxed in the UAE:
- All foreign banks are subject to a 20% corporation tax
- All oil businesses are subject to 20% corporation tax
- VAT – Dubai has a 5% VAT (like sales tax in the US)
- Import duties on products that are frowned upon in Islam (such as tobacco, alcohol, and arms)
Note that working with a tax advisor in Dubai will help you to minimize any VAT you need to pay.
What are the legal structures for businesses in the UAE?
- Sole proprietorship – This is the same as it is in most other countries in the world; a company owned by one person. You can create a sole proprietorship in the UAE no matter what nationality you are, but there are some restrictions around what type of business you have if you aren’t a UAE or GCC national.
- Civil company – Accountants, doctors, and lawyers can form a civil company, but 51% or more shares in the company must be owned by a UAE national.
- LLC (Limited Liability Company) – An LLC in the UAE works much the same way as it does in the US, but there must be at least 2 shareholders, with 51% of the company owned by a UAE national.
- Foreign Company Branch – If your parent company is in another country, you can open a branch in the UAE, without any ownership needed by a UAE national. You must import goods through a local company.
- Free Zone Company – These businesses need 2-5 stakeholders and do not need a designated location within the UAE. There are 45 free zones in the UAE, with several in Dubai. Once you have a Free Zone company, you can apply for a 3-year residence visa which will allow you to come and go as you please.
- Free Zone Freelancer – If you want to work in Dubai but do not have 2-5 stakeholders with you, you can apply as a Freelancer within one of the free zones.
How to Set Up a Business in Dubai
You can set up any kind of business outlined above, provided you have the right partners and circumstances, but most people looking to take advantage of Dubai’s tax system will choose to set up a free zone company. For that reason, we’ll focus on the steps for how to set up a business as a foreigner in Dubai within a free zone.
Step 1: Choose Your Business Activity
This step is straightforward – you simply need to define which of the following categories your business’s activity will (or does) fall into:
Step 2: Choose a Free Zone
Your next step is to choose a free zone. There are over 20 free zones in Dubai alone, so it’s up to you to choose a free zone that best suits your business and lifestyle. You can find a list of the possible free zones and a bit about them here, but you can also reach out to me and I’d be happy to advise you.
Step 3: Choose Your Company Name
The only restrictions here are you cannot name your company with any political or religious references, and if your company is named after someone, they must be a current partner or shareholder in the company, and it cannot use their initials.
Step 4: Apply for Your Business License
With the major decisions taken care of, you can make your application. Each type of license has its own requirements, so it’s well worth working with a consultant to guide you on each step of the application process. If you need guidance, please don’t hesitate to reach out.
Most applications require the following documents:
- Color copies of passports of all shareholders
- Visa information of shareholders (see step 5)
- A business plan
- Application form
- Board resolution
- Articles of association
- A memorandum
Step 5: Apply for Your Visa
You should start your visa application at the same time you put in your business application. This is a straightforward process that looks something like this:
- Get an entry permit
- Apply for an adjustment of status as a resident of Dubai
- Undergo a medical check
- Register an Emirates ID
- Get your visa
Step 6: Open a Business Bank Account
Opening bank accounts in Dubai is easy, but there are a few more steps to open a corporate account than a personal account. Most banks have eligibility requirements and will ask for the following documentation when you apply:
- Proof of business license
- Business incorporation documents
- Copies of share certificates
- A resolution from the company’s board about opening the account
- Copies of passports of partners
- Copy of the articles of association
- Copy of the memorandum
Step 7: Enjoy Your New (Largely Tax-Free) Dubai Lifestyle
Once you’ve got your business, your visa, and your bank accounts, you’re ready to start enjoying life and business out here in Dubai.
Time to make a move?
If you’re ready to start life as an entrepreneur or want to move your business activities to a country where you’ll lose less of your hard-earned profits in taxes, you’ll be hard-pressed to find a better city than Dubai.
Making a move as big as this one can be stressful, so get a consultant on your side to guide and support you through the process so you can launch your business quickly and start reaping the rewards of Dubai’s lower tax rates.
I’m here to help you set up a Free Zone company in Dubai with minimal stress. To discuss your needs further or to get the ball rolling, click here to contact me now.