United Arab Emirates: Economic Substance Rules

[Martin Everson]

UAE offshore companies don't have to maintain economic substance because offshore companies have a non resident status in UAE and by law they cant maintain economic substance. UAE offshore company don't benefit from any double taxation treaty as well and can't get tax residency certificate like freezone and mainland company can.

See direct link to what I wrote already in this thread.

United Arab Emirates: Economic Substance Rules

http://www.mondaq.com/x/838350/Compliance/Economic+Substance+Rules 21st August 2019 - UAE Companies – How Your Business May Be Affected If you are operating an onshore or offshore entity in a "no or only nominal tax jurisdiction" (referred to hereinafter as a "noon"), which amongst others...

www.offshorecorptalk.com

If your not resident in UAE with a UAE offshore company then the place of operation is where the effective place of management control is which is the resident country of the director. Same like any other Caribbean IBC. If management in UAE then no issues.

 

[BlueMist]

For an EU setup then setup a local Malta company with foreign shareholders (5% tax rate after full imputation) and use Fimbank in Malta. They have very tough compliance but setup works well.
[...]

How is your experience with Fimbank Malta? I just saw they have representative office in Dubai DIFC. Their fees however are on a much higher side compared to e.g. BOV... Basically SEPA outward transfers above €10,000 are 0.1% max EUR 60, compared to €4 at BOV...

 

[hernanday]

The first sentence in most post says a lot. You also need to consider CFC rules which makes these companies pointless for tax purposes for non-residents of UAE.



No substance in UAE then your taxed in country where the center of activity and management control takes place. This has been standard practice for a while now.



A UAE offshore company for a non-resident is pointless for tax purposes. Any country with CFC rules will tax it so why bother.

This post is correct. I'd just add, with Canada, there is a special exemption for countries with the tax sharing ITEA agreements that make the dividends remitted untaxed on CFCs in some certain circumstance. So it is probably worthless for taxation everywhere now except Canada.

 

[Martin Everson]

How is your experience with Fimbank Malta? I just saw they have representative office in Dubai DIFC. Their fees however are on a much higher side compared to e.g. BOV... Basically SEPA outward transfers above €10,000 are 0.1% max EUR 60, compared to €4 at BOV...

No recent experience as bank gone through changes. What kind of account are you looking for there?

 

[BlueMist]

No recent experience as bank gone through changes. What kind of account are you looking for there?

Corporate bank account for Malta company with non resident UBO.

 

[Martin Everson]

Corporate bank account for Malta company with non resident UBO.

You normally have to go in person to open an account and they prefer Malta resident directors. However with DIFC office you should be able to liaise there and sort out paperwork to send to Malta. However from my experience they are looking for middle east clients of means to place large deposits with them which they use to back their trade finance business. Not sure what specifically attracts you to this bank other than a local Rep office in Dubai.

 

[BlueMist]

You normally have to go in person to open an account and they prefer Malta resident directors. However with DIFC office you should be able to liaise there and sort out paperwork to send to Malta. However from my experience they are looking for middle east clients of means to place large deposits with them which they use to back their trade finance business. Not sure what specifically attracts you to this bank other than a local Rep office in Dubai.

I do have a Malta resident director, just the UBO is non resident. I need to open a corporate bank account and just checking the options that would be the easiest and least time consuming to proceed. BOV after 8 years are closing the corporate bank account (not personal though), although everything was transparent, revenues coming from within EU from the same companies for years. They are de-risking on a massive scale, even legit running businesses with local offices are being shown exit doors.

I don’t want to lose time with HSBC, as even many years before it was hard to open corporate account with them.

The situation in Malta when it comes to banking is not the greatest at the moment. I don’t care if the bank has presence in DIFC or not but I saw your post which mentioned them, so wanted to get some feedback.

 

[MarkusM]

A UAE offshore company for a non-resident is pointless for tax purposes. Any country with CFC rules will tax it so why bother.

Why do you say it’s pointless for a non redident? As long as that UAE offshore company have a non-resident director and you are only the shareholder of it, what would be the problem??

 

[Martin Everson]

As long as that UAE offshore company have a non-resident director and you are only the shareholder of it, what would be the problem??

CFC rules

 

[MarkusM]

CFC rules

Well, yes, I know about the CFC rules, but a company is not controlled by its shareholder, it is controlled by its directors, so the management and the control of the company will be where the director it is resident, not where the shareholder is resident.

 

[Martin Everson]

Well, yes, I know about the CFC rules, but a company is not controlled by its shareholder, it is controlled by its directors, so the management and the control of the company will be where the director it is resident, not where the shareholder is resident.

Not entirely true. CFC rules are about controlling owner/person with significant control. This does not automatically mean it is the director. It is about where significant control is exercised. If it was that easy then every shell company with a nominee/paid director would meet CFC rules and a person hiding behind being just a shareholder could avoid CFC rules...lol. Unfortunately you need to look into each CFC rule set your up against. Some look at who the UBO is and also where and who actually is making the decisions for the company. This may show up as who has signatory powers over bank accounts and other assets etc etc. Plus if it is the shareholder who has to sign off everything then this is the person who is exercising significant control of the company and not the directors.