Possible Dubai/UAE 0% Corporate Tax Structure

[FreedomSearcher]

I came up with a potential structure to pay 0% corporate tax (legally) in the UAE, even if you do millions of USD a year in revenue/profit.

Let's say you run a media production & publishing company, here is the example in this case:

1. Set up a "Production" & a "Publishing" Freezone company (I chose IFZA)
2. Create a contract between your Production & Publishing company,
where the Publishing company publishes the media for the Production company, receives the revenue and takes a 5-10% fee, rest of revenue gets sent back to Production company.
3. As funds sent between freezone companies are NOT taxed, there's no tax on the Production company's revenue.
4. You use the "Small Business Relief" (AED3 million revenue threshold) + "AED 375,000 profit threshold" (0% before that) (for the Publishing company)
5. You also pay yourselves a handsome salary + bonus package each year + make some tax deductions on your expenses to minimize profits. (for the Publishing company)

RESULT: Overall, you pay close to 0% in corporate taxes.

How viable is this concept? Would it work smoothly in reality?

Eager to hear your thoughts.

 

[ShillGates]

Is point 3 true?

 

[FreedomSearcher]

ShillGates said:
Is point 3 true?
Click to expand...

"Dealing with Non-Free Zone Persons: If the income is generated from transactions with non-free zone persons, it is taxed at a rate of 9%. 1.2. Dealing with Free Zone Persons: If the income is generated from transactions with other free zone persons, it is considered as Qualifying Income and taxed at a rate of 0%"

My corporate service provider told me transactions between FZ companies is tax free.

Does anyone think it's not correct?

 

[Marzio]

FreedomSearcher said:
takes a 5-10% fee
Click to expand...

It could work if this fee will be considered at arm's lenght.

You should check UAE transfer pricing rules

 

[GerhardStrasser]

All income derived from transactions with other Free Zone Persons is treated as Qualifying Income, unless the other Free Zone Person is not the beneficial recipient of the relevant transaction or supply. Free Zone Persons acting as an intermediary, agent or conduit on behalf of another person would not be considered the beneficial recipient of the relevant transaction with the Qualifying Free Zone Person.

In general, it is too early to make any decision as there are still a lot of details that have not been clarified.

 

[FreedomSearcher]

GerhardStrasser said:
All income derived from transactions with other Free Zone Persons is treated as Qualifying Income, unless the other Free Zone Person is not the beneficial recipient of the relevant transaction or supply. Free Zone Persons acting as an intermediary, agent or conduit on behalf of another person would not be considered the beneficial recipient of the relevant transaction with the Qualifying Free Zone Person.

In general, it is too early to make any decision as there are still a lot of details that have not been clarified.
Click to expand...

It's not gonna be a conduit, the Publishing company would do a lot of value producing actions as well.

 

[GerhardStrasser]

FreedomSearcher said:
I came up with a potential structure to pay 0% corporate tax (legally) in the UAE, even if you do millions of USD a year in revenue/profit.

Let's say you run a media production & publishing company, here is the example in this case:

1. Set up a "Production" & a "Publishing" Freezone company (I chose IFZA)
2. Create a contract between your Production & Publishing company,
where the Publishing company publishes the media for the Production company, receives the revenue and takes a 5-10% fee, rest of revenue gets sent back to Production company.
3. As funds sent between freezone companies are NOT taxed, there's no tax on the Production company's revenue.
4. You use the "Small Business Relief" (AED3 million revenue threshold) + "AED 375,000 profit threshold" (0% before that) (for the Publishing company)
5. You also pay yourselves a handsome salary + bonus package each year + make some tax deductions on your expenses to minimize profits. (for the Publishing company)

RESULT: Overall, you pay close to 0% in corporate taxes.

How viable is this concept? Would
Click to expand...

Today's news:

The ministerial decision also includes a safeguard (GAAR) against businesses artificially splitting their operations to fall within the revenue threshold. If any business does this to avail of the small business relief, it's will not be eligible to gain a corporate tax advantage, as this will not be permissible.

 

[JimBeam]

What about 5% VAT?

 

[GerhardStrasser]

JimBeam said:
What about 5% VAT?
Click to expand...

Only if you doing business inside the UAE.

 

[FreedomSearcher]

GerhardStrasser said:
Today's news:

The ministerial decision also includes a safeguard (GAAR) against businesses artificially splitting their operations to fall within the revenue threshold. If any business does this to avail of the small business relief, it's will not be eligible to gain a corporate tax advantage, as this will not be permissible.
Click to expand...

If I get tax lawyers and great accountants involved, could it potentially work if structured correctly?

 

[FreedomSearcher]

bump

 

[TheCryptoAnt]

FreedomSearcher said:
If I get tax lawyers and great accountants involved, could it potentially work if structured correctly?
Click to expand...

I mean if you cook the books yeah but i wouldnt if I was you. Having two FZCO doing the same activity is not gonna be of their liking regardless of how you frame it. The main problem here is that you would own both of them (or so I understood)

Maybe use the FZCO as a holding and a foreign corp as the one for the business? This can get tricky if you actually live in UAE cause place of management and the likes kicks in tho.

 

[FreedomSearcher]

TheCryptoAnt said:
I mean if you cook the books yeah but i wouldnt if I was you. Having two FZCO doing the same activity is not gonna be of their liking regardless of how you frame it. The main problem here is that you would own both of them (or so I understood)

Maybe use the FZCO as a holding and a foreign corp as the one for the business? This can get tricky if you actually live in UAE cause place of management and the likes kicks in tho.
Click to expand...

It's not two FZCO doing the same activity. The activities are different.

 

[JohnLocke]

GerhardStrasser said:
Only if you doing business inside the UAE.
Click to expand...

FreedomSearcher said:
bump
Click to expand...

You should tag @EmiratesSetup to get their attention, that's usually better.

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[GerhardStrasser]

FreedomSearcher said:
bump
Click to expand...

At the moment, nobody can tell you for sure because we are all waiting for the final rules, requirements and laws from the government. Anyway, I don't think it would work because you are the UBO of both companies, just splitting the acitivities (for tax reasons) and that would be 100% against that safeguard rules. But as I mentioned, let's wait for the final rules...

 

[TheCryptoAnt]

FreedomSearcher said:
It's not two FZCO doing the same activity. The activities are different.
Click to expand...

where the Publishing company publishes the media for the Production company, receives the revenue and takes a 5-10% fee, rest of revenue gets sent back to Production company.

aight g now try to explain this to the new tax agency. Im not saying it couldnt work, however for now it dont seem like they are gonna be lose with things.

Id be better imo if you got a biz partner for the 2nd so they aint both in your name

 

[Mr Gus]

TheCryptoAnt said:
where the Publishing company publishes the media for the Production company, receives the revenue and takes a 5-10% fee, rest of revenue gets sent back to Production company.

aight g now try to explain this to the new tax agency. Im not saying it couldnt work, however for now it dont seem like they are gonna be lose with things.

Id be better imo if you got a biz partner for the 2nd so they aint both in your name
Click to expand...

Splitting ownership 50/50 for the publishing company might make this setup work indeed. If point 3 which he pointed out is correct as well.
If OP can find someone in the same business as him that might want to do the same setup they could use the same publishing company.

However aren't you facing withholding taxes from the US as well, how do you tackle that?

 

[FreedomSearcher]

Mr Gus said:
Splitting ownership 50/50 for the publishing company might make this setup work indeed. If point 3 which he pointed out is correct as well.
If OP can find someone in the same business as him that might want to do the same setup they could use the same publishing company.

However aren't you facing withholding taxes from the US as well, how do you tackle that?
Click to expand...

We use MCNs and UK LLPs to avoid WHT.

 

[JustAnotherNomad]

FreedomSearcher said:
We use MCNs and UK LLPs to avoid WHT.
Click to expand...

Have you looked at LoB clauses?

 

[csp dubai]

dubai tax is 9% there is no way out , better you not make any games , they will take your passport and frooze your assets, and you will stay in limbo 3 years minimum with court and lawyers suck your blood