Permanent Establishment rules UAE, with new CT on Companies

[andrew28fl]

I have been trying to research what would happen to owners of offshore companies who live in the UAE. For example, if one lives in Dubai, and operates a US LLC or UK LLP etc. I came across this article (hope links are allowed) Introduction of Corporate Tax in the UAE, other wise search for "gibson dunn corporate tax in uae"

which says "In line with tax measures in other jurisdictions, CT will be levied on foreign legal entities: (1) with a permanent establishment (“PE”) in the UAE, and that earn UAE sourced income, or (2) that are tax resident by way of management and control in the UAE."

So basically if the owner lives in the UAE, the (2) would apply, and the foreign entity (US LLC/UK LLP) will become taxable in the UAE, correct? More than the 9% tax, I am worried about the upkeep, bookkeeping, and filing taxes. Any experts to shed some light on this? Thanks.

 

[Martin Everson]

andrew28fl said:
So basically if the owner lives in the UAE, the (2) would apply, and the foreign entity (US LLC/UK LLP) will become taxable in the UAE, correct?
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Yes it would seem that way. Even government website hinted this is my post I made here months ago.

andrew28fl said:
Any experts to shed some light on this?
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Speak to a local tax firm or the one you linked. UAE is going through a lot of new tax changes in its tax practices as we speak owing to OECD pressure. It is a work in progress. No one is going to know more right now than a local tax advisor firm out there in UAE.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[MiddleEuroAsia]

andrew28fl said:
I have been trying to research what would happen to owners of offshore companies who live in the UAE. For example, if one lives in Dubai, and operates a US LLC or UK LLP etc. I came across this article (hope links are allowed) Introduction of Corporate Tax in the UAE, other wise search for "gibson dunn corporate tax in uae"

which says "In line with tax measures in other jurisdictions, CT will be levied on foreign legal entities: (1) with a permanent establishment (“PE”) in the UAE, and that earn UAE sourced income, or (2) that are tax resident by way of management and control in the UAE."

So basically if the owner lives in the UAE, the (2) would apply, and the foreign entity (US LLC/UK LLP) will become taxable in the UAE, correct? More than the 9% tax, I am worried about the upkeep, bookkeeping, and filing taxes. Any experts to shed some light on this? Thanks.
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Yes, your LLC/LLP would be seen as a mainland company from tax prespective. Would that be enforcable? no, that's just to please the suckers in the OECD and remove UAE from the grey list.

Easy solution: form a FZCO that own the LLC/LLP, appoint yourself as a manager of the FZCO and repartiate the profits from the LLC/LLP to the FZCO, then to you as a manger vid dividends/salary/director fees.

Speak to tax attorney though to make sure you have everything covered.

 

[Alenka]

MiddleEuroAsia said:
Yes, your LLC/LLP would be seen as a mainland company from tax prespective. Would that be enforcable? no, that's just to please the suckers in the OECD and remove UAE from the grey list.

Easy solution: form a FZCO that own the LLC/LLP, appoint yourself as a manager of the FZCO and repartiate the profits from the LLC/LLP to the FZCO, then to you as a manger vid dividends/salary/director fees.

Speak to tax attorney though to make sure you have everything covered.
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So that FZCO with "holding" license?

 

[JackAlabama]

Alenka said:
So that FZCO with "holding" license?
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No need for license, the fzco is just 100% member.

 

[JohnLocke]

MiddleEuroAsia said:
Easy solution: form a FZCO that own the LLC/LLP, appoint yourself as a manager of the FZCO and repartiate the profits from the LLC/LLP to the FZCO, then to you as a manger vid dividends/salary/director fees.
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Something you know that should work or an idea you just came up with? I'm asking because it is an interesting setup!

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[MiddleEuroAsia]

James Spader said:
Something you know that should work or an idea you just came up with? I'm asking because it is an interesting setup!
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Form a FZCO with a good freezone authority, appoint yourself as a director of the FZCO, make the FZCO a holder of the US LLC, do your business via LLC (but make sure to have another director managing the US LLC, at least on paper) and then repatriate the profit later to the FZCO. Simple, 0 tax structure.

 

[Marzio]

MiddleEuroAsia said:
make sure to have another director managing the US LLC
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This could make the US LLC tax resident in US if the director is US based.

 

[yngmind]

MiddleEuroAsia said:
Form a FZCO with a good freezone authority, appoint yourself as a director of the FZCO, make the FZCO a holder of the US LLC, do your business via LLC (but make sure to have another director managing the US LLC, at least on paper) and then repatriate the profit later to the FZCO. Simple, 0 tax structure.
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I also have a theory, you can still use your offshore companies, but don't be a company director, be a shareholder so someone else will manage the company from another country.

There will likely be a problem with bank accounts with your setup, even with EMI.

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I'm not a tax advisor, so please don't consider my posts here as tax advice. Always seek a professional opinion.
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Business Bank Account for your US LLC Remotely

 

[Marzio]

yngmind said:
There will likely be a problem with bank accounts with your setup, even with EMI.
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Are you speaking from personal experience?

 

[MiddleEuroAsia]

marzio said:
This could make the US LLC tax resident in US if the director is US based.
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Doesn't have to be a US director.

 

[Marzio]

MiddleEuroAsia said:
Doesn't have to be a US director.
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Wherever the director will manage the company from there's a risk of creating a PE in that place.

 

[MiddleEuroAsia]

marzio said:
Wherever the director will manage the company from there's a risk of creating a PE in that place.
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not necessarily. PE rules are pretty lax in most any countries that's not the US nor the EU.

 

[OffshorePhantom]

MiddleEuroAsia said:
not necessarily. PE rules are pretty lax in most any countries that's not the US nor the EU.
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In which countries do you suggest the manager of the LLC be resident to?

 

[MiddleEuroAsia]

hireblade89 said:
In which countries do you suggest the manager of the LLC be resident to?
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Malaysia, Thailand, Philippines, Singapore and of course, the elephant in the room - the UAE.
you can easily scrap all the above methods and operate as usual and they will not bother you, you are not their main target nor the reason they implemented this tax. They won't go after you unless you are involved with shady business practices.

Last edited: Dec 23, 2022

 

[OffshorePhantom]

MiddleEuroAsia said:
Malaysia, Thailand, Philippines, Singapore and of course, the elephant in the room - the UAE.
you can easily escape all the above methods and operate as usual and they will not bother you, you are not their main target nor the reason they implemented this tax. They won't go after you unless you are involved with shady business practices.
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Ok so even if you are the manager of the LLC you suggest you can manage it from UAE and probably no one will bother you with the new 9% corporate tax, even if the foreign company is managed from UAE and in theory subject to the new tax. I thought the same, but better be safe than sorry.

If they will go after all the LLCs managed from UAE probably most expats will fly away from UAE in a matter of months.

 

[Marzio]

There must be something i'm missing.

Why do you guys think that UAE will not enforce a law that is preventing people to operate shell companies from UAE?

I mean, why you guys don't operate directly with a freezone company?

Is it because UAE banks suck?

Is it because of problems with payment processors or clients not trusting a UAE entity?

 

[OffshorePhantom]

Usually some services are not available in UAE or have higher fees (like Stripe).

In other cases you may want to keep your money in USD instead of AED to avoid later conversion fees to pay things (I know the USD/AED exchange in theory is fixed but in practice there is always a spread so when you move huge amount of money and have to make most of the payments in USD it is better to directly receive payments in USD in the first place and sometime to do that you need a US entity).

Finally you have better banking possibilities with a US entity.

In my case, for example, I receive most of the payments in USD from US entities and receiving it to a US bank account is easier, faster, more convenient and have less fees.

 

[Marzio]

hireblade89 said:
In my case, for example, I receive most of the payments in USD from US entities and receiving it to a US bank account is easier, faster, more convenient and have less fees.
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Yes it makes sense, if i remember correctly you receive income from your app business.

How are you avoiding US WHT being a UAE resident?

 

[OffshorePhantom]

marzio said:
Yes it makes sense, if i remember correctly you receive income from your app business.

How are you avoiding US WHT being a UAE resident?
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I am still evaluating the best option to avoid it, probably it will involve a more complex structure with another company in a state that has a tax treaty with USA and then shift the profits.

Also my app business income is considered as service income so the WTH in theory, as of my understanding, would be applied only to the portion of revenue created by the US audience so it would not be that huge since we have a small US audience compared to the global audience.

In my space the law is not that clear for example for the same nature of revenue Apple does not apply WTH while Google is and in theory since it is considered as service income and not royalties even Google shouldn't apply the WTH.