UAE to introduce 9% corporate tax on business profits from June 1, 2023 (FZCO REMAINS 0%)

[JustAnotherNomad]

It depends on the financial year of the company. If‍ the company has a Jan-Dec financial year, corporate tax only applies from Jan 2024.
Then by the end of September 2025, their declaration and payment of the corporate income tax⁠ for Jan-Dec 2024 would be due.

For companies with a financial year July-June, corporate income⁤ tax would apply from July 2023, and then corporate tax would again be due 9⁣ months after July 2024 (too lazy to do the math).
At least that's how I⁢ understood it.

 

[meze99]

Is there an official statement with an explanation which kind of free zone company is‌ eligible for small business relief (I guess it depends on the trade license)?
As far‍ as 9% corporate tax is concerned, will it be applied to Remote Worker Visa holders?⁠

 

[JustAnotherNomad]

Doesn't it only depend on the profit and revenue? Yesterday or so⁠ they also clarified that there is no corporate tax if the revenue is below AED⁤ 1M.

I don't think they have decided yet.⁢

 

[stivemoose]

I am planning to relocate to Dubai in the coming months and obtain a freezone‌ visa and company. However, I do not intend to use this company as all my‍ trading activities will be conducted through an LLC based in the US. I work remotely⁠ and my business is entirely digital, with no trading activities taking place in the UAE.⁤ Is this setup still valid?

 

[Fred]

All information correct - @JustAnotherNomad is so far understanding things in the right way - don't mix up things or⁠ think that some Freezones across Dubai are seen different from FTA in regards to CIT.⁤

Small Business Relief is for Freezone Companies below 3M AED.

Every day things are becoming⁣ more clear and we keep on working something out for a streamlined process.

Of course.

 

[stivemoose]

Thanks, @Fred, for your⁣ response. In your opinion, based on the latest news we have from June, will I⁢ have to pay the 9% on dividends from my company? Additionally, could Dubai pose any︀ issues since I am running an LLC company from Dubai?

 

[bedouin]

If people have to pay 9% on dividends, then many people are packing their bags‌ to flee dubai forever, me included.

 

[Fred]

No.

Correct.

 

[JustAnotherNomad]

Valid yes. If there will⁣ be UAE tax - not clear. Probably not. I don't think they have really even⁢ considered such scenarios.

 

[algotrader]

That depends not only on the revenue but whether your company is⁠ considered a "qualified freezone person" or not. It applies to mainland companies for sure but⁤ you need to apply for SBR.

https://cms-lawnow.com/en/ealerts/2023/04/uae-corporate-tax-small-business-relief-criteria

 

[stivemoose]

So, to summarize, if I were to relocate to Dubai and engage in trading with‌ an LLC based in Delaware, for instance, and at the end of the year, I‍ receive dividends from the LLC into my personal bank account in Dubai, would this still⁠ be tax-free and legal?

Or is there something I am overlooking? I have heard that⁤ the new law has made things more complex, but if it does not affect my⁣ current setup, then I am happy with it. Thank you.

 

[JustAnotherNomad]

Just a side‍ remark: You're probably thinking of a single-member LLC that is treated as a disregarded entity⁠ and that pays no tax in the US. There is no need to incorporate in⁤ Delaware for this, it works just as well with many other states (Florida, Wyoming, Nevada,⁣ ...).

Unless you have elected︀ for the LLC to be taxed as a corporation, I don't think that LLC can︁ pay dividends, since it's a disregarded entity. Well, unless it is treated as a UAE︂ company, in which case it may have to pay tax in the UAE.

As has been mentioned about 100 times︄ now, this has not been clarified yet. In theory, it is definitely possible that the︅ US LLC has to pay 9% corporate tax in the UAE and that there will︆ be steep fines for failing to register for this. Will it be enforced in the︇ near future? Highly unlikely. It is even unclear if they have really even considered such︈ cases, they probably have bigger fish to fry at the moment.

This probably mostly comes down to whether you need a license for︊ that activity. The whole legal situation in the UAE is very unclear. Many people have︋ such a setup, so at least they don't really seem to care that much.

 

[stivemoose]

Thanks for your response.

Yes, I am considering setting up a single-member LLC, and both Wyoming (WY) and Delaware (DE)︈ seem like viable options to me. I am aware that LLCs cannot pay dividends, but︉ I'm unsure how they are considered in the UAE. In Portugal, I've heard that an︊ LLC is treated as a corporation, even though technically it's not.

When you mentioned trading︋ as UAE, were you referring to conducting business with clients specifically located in the UAE?︌ Currently, most of my clients are worldwide, and I anticipate having only a few low-value︍ transactions originating from Dubai.

The main objective for me is to avoid using the company︎ in Dubai, as I believe it is not well-suited for my digital business operations.

In theory, by June, we should have more clarity on whether the 9% tax should be️ paid on LLC profit distributions, corrects?

Thanks a lot for your assistance.

 

[Konstanz]

I would not rely on non enforcement.⁢ Let's say you are being investigated by your high tax country of working through this︀ US LLC. Usually in such case they would send bunch of questions to US and︁ to your residence country UAE. And this can start s**t storm.
I would not risk︂ playing with law in UAE. In UAE you can get in trouble for bounced check...︃
In such country as Andorra yes, you would probably get away with it by showing︄ that not all activity was in Andorra etc. But in UAE you don't know what︅ would happen in case they suspect you had to pay corporate income tax.
It just︆ all depends how lucky you are. But you risk jail in Dubai
Usually is not︇ the low tax country which start looking at things. But the other high tax country︈ and that what starts s**t to hit the fan
🙂

Just read E part here:
https://mof.gov.ae/corporate-tax-faq/
Partnerships are highlighted that they will have to pay tax in UAE if they are︉ controlled by UAE residents..

 

[JustAnotherNomad]

I think it‍ will take much longer than that. Might not even be this year, considering that it⁠ will take a long time for the first corporate tax payments to be due.

 

[Konstanz]

It will be especially risky if you have EU customers and working through foreign companies‌ in UAE, US LLC similar..
Starting next year there would be new reportings by financial‍ institutions about payments to foreign companies and that could trigger high tax countries to investigate⁠ these companies and persons behind them
https://www.ey.com/en_lu/tax/eu-introduces-new-vat-reporting-obligations-as-of-1-january-2024
So, all will have to be crystal clear⁤ with residency, proper tax planning etc

 

[Cloudbanck]

In what situation would a high tax country start investigating a US LLC though? How would⁤ the high tax country even know the US LLC exists in the first place?

Say a situation where one has cut the ties with the high tax country of origin⁣ many many years before the US LLC is crested, and only lived in the UAE⁢ or other low/no tax countries for decades?

 

[stivemoose]

Given that the majority⁣ of my clients are from the European Union (EU), what potential ideas could be developed⁢ to cater to this audience?

 

[bnpsu]

Hey guys, what about using a US partnership instead of a LLC?? Dubai taxes partnerships‌ as pass-through, as if it's personal?

Is that for US LLC's as well?

 

[JustAnotherNomad]

@Konstanz literally posted the link for you a few posts up, where the UAE tax‌ authorities clarify that a foreign partnership has to pay UAE corporate tax:

https://www.offshorecorptalk.com/th...-june-1-2023-fzco-remains-0.36312/post-259006