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]

Yes it would seem that way. Even government website hinted this is my‍ post I made here months ago.

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 in︀ UAE.

 

[MiddleEuroAsia]

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

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

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

 

[Alenka]

So that FZCO⁢ with "holding" license?

 

[JackAlabama]

No need for license,‌ the fzco is just 100% member.

 

[JohnLocke]

Something you know⁠ that should work or an idea you just came up with? I'm asking because it⁤ is an interesting setup!

 

[MiddleEuroAsia]

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]

This could make the US LLC tax resident in US if the director is US‍ based.

 

[yngmind]

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 your︀ setup, even with EMI.

 

[Marzio]

Are you speaking from personal experience?

 

[MiddleEuroAsia]

Doesn't have to be a US director.

 

[Marzio]

Wherever the director‌ will manage the company from there's a risk of creating a PE in that place.‍

 

[MiddleEuroAsia]

not necessarily. PE rules are pretty lax‍ in most any countries that's not the US nor the EU.

 

[OffshorePhantom]

In which countries do you suggest the‍ manager of the LLC be resident to?

 

[MiddleEuroAsia]

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.

 

[OffshorePhantom]

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 UAE︀ and in theory subject to the new tax. I thought the same, but better be︁ safe than sorry.

If they will go after all the LLCs managed from UAE probably︂ 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 US︀ entities and receiving it to a US bank account is easier, faster, more convenient and︁ have less fees.

 

[Marzio]

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]

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 that︀ huge since we have a small US audience compared to the global audience.

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