UAE FZCO Holding US LLC -> 0%?

[bigbite100]

Hello,

there are qualifying activities for UAE companies to pay 0% tax. one of the activites is "holding shares".

Does that mean, a UAE FZCO which owns 100% of a US LLC (US LLC is the operating business and serves customers outside of UAE) is eligible for the 0% qualified activity?

 

[Sols]

US LLCs do not issue shares.

 

[bigbite100]

US LLCs do not issue shares.

So in that case, the LLC could be owned by a HK company and the FZCO owns the HK company. Would that work? The HK itself should also be 0% because its foreign income or not?

 

[Sols]

While it's hard to answer for sure given the incompetence of the authorities in UAE in clarifying the rules, the answer to your question as asked is probably that yes, no tax would apply. The Hong Kong company receiving profits from the US LLC wouldn't be taxed in Hong Kong. Dividends from Hong Kong to UAE would fall under qualified activity.

However, if you are resident in UAE and if you effectively (directly or indirectly) control the US company (and/or HK company), the income is probably considered active income in UAE. If that is the case, what you are doing would be tax evasion.

I usually call tax evasion one of the dumbest crimes a person can commit. It's especially so in a totalitarian state. So be careful and weigh the pros/cons of just paying 9% tax vs the risks of not doing so.

 

[ZipZop]

sorry but there is something I don't understand. any holding company which is a major shareholder (or sole shareholder) of a foreign company will effectively have direct or indirect control over it no? so in your explanation it would mean any holding company in UAE (which should be exempt of any tax with the new CT law) would be subject to tax as it has to hold minimum 10% of a subcompany for more than 12 months to be considered as a holding company.

so, if we come back to the case (let's forget the US LLC):

UAE resident which owns 100% of a holding (with the holding license) UAE FZ company which owns 100% of a HK company (let's say operational company with advisory fees or sales incomes for nothing from/in HK)
(UAE resident ------>100% holding UAE FZ ------>100% HK operational company with no local income)

you really think the dividend would be considered as a qualified income? if yes, do you have any example where a UAE holding company owned by a UAE resident would be exempt of CT?

 

[Sols]

sorry but there is something I don't understand. any holding company which is a major shareholder (or sole shareholder) of a foreign company will effectively have direct or indirect control over it no? so in your explanation it would mean any holding company in UAE (which should be exempt of any tax with the new CT law) would be subject to tax as it has to hold minimum 10% of a subcompany for more than 12 months to be considered as a holding company.

There's a difference between a UAE company being a genuine parent company and a UAE company owning a foreign company just to avoid UAE corporate tax.

By "control" I meant to imply control exercised by a UAE resident natural person over a foreign company, such as deciding day to day business operations or working for the company.

Genuine holding companies likely have nothing to worry about.

 

[JustAnotherNomad]

If you are a UAE resident and you habitually work for the US and/or HK company from the UAE, this would probably make those companies taxable in the UAE, no matter how the ownership is structured. Whether this would be enforced would be another matter entirely. If you would like to gamble on how the UAE interprets/enforces their own laws, then have fun. This would be way above my risk appetite.

 

[ifzaguider]

work for the US and/or HK company from the UAE, this would probably make those companies taxable in the UAE

What makes you think that? Its a company thats not operating inside UAE. Having employees in various countries, that work for the HK-company, doesnt make that HK company taxable in the UAE. Shouldnt be any issue but maybe you can share your thoughts.

 

[JustAnotherNomad]

What makes you think that?

The UAE can tax companies based on their effective place of management.
Same as if you have a Dubai company with employees working from Dubai, but you manage the company from France. Then France can also tax that company.
How much they can tax depends on whether there is a tax treaty.

Obviously Qatar and UAE will be less strict than France. But it's still a risk. I would say the risk of them going after your "offshore" company is significantly lower if you don't have local clients etc., but if they do, the problem is that you don't know what will happen. There is no case law, no rule of law, potentially high fines or even jail time.
That's why I would always try to set things up in a way that are clear for them to understand.
"No, I don't operate my offshore company from here, of course. Everything I do here, I do through my local freezone company!" - clear.
vs.
"I don't have a local company here. I only have an offshore company. Oh yeah, I live here. Yes, I sometimes work online for my offshore company from here. No, I don't think I have operations here, why would you want to tax me?" - not so clear...