UAE clarification of Freezone Qualifying Income

[jafo]

Yes, the only reason why somebody would move to UAE is 0% tax and no declarations/reporting
Like St Kitts and Nevis just closer to Europe and normal city

#Bingo! This is the correct answer!
Once that "privilege" is off the table, so are we and anyone else with an IQ higher than room temperature (in Celsius, of course)

 

[SasuT]

Good for you, my post was about overall taxation.

Now add your personal income taxes to the 8.63% CIT and let me know about your total tax burden

In UAE it's 9% total

For those that want to pay less than 9% there are nearly zero better options.

I'm not saying there aren't options (if you want you can fly to Vanuatu), i'm talking about better options meaning options with the same taxation level, networking opportunities, lifestyle and so on.

I don't see them but i'm sure you can englight us.

It’s sooo funny because I’m EXACTLY in the situation you mentioned just before as an example lol.

Apart from that, I see everybody talk about the 9% corporate tax, but let’s remind that it’s only if you make more than 375K AED profit, am I wrong?

Then everybody will just pay big salaries to themself to stay below 375K AED and avoid the 9% tax. Am I wrong?

(but it seems too easy, I doubt it will last)

 

[troubled soul]

Once again -

Let's challenge the audience :

- I am doing Marketing Services/Ecommerce - I am 25 years old and I am ready to leave Europe to get better taxation environment and opportunities.

Starting from 0 -
Target is to do 1M net income yearly-

Please can someone shows up with better solution than Dubai using professional arguments

As a reminder

- No personal tax
- 9% tax based on net income up to 100K USD (could be optimized easily up to 5% for 1M USD income)
- Business environment and multi-cultural place
- CRS managed by Indians in banks (will be understood by those who want to).
- 5% VAT

Let's consider setting up cost, admin, yearly maintenance of the structure, etc.. and analyze.

What's the better plan


I don't have really much skill for juridiction like Bulgaria but let's just challenge it :

5 Best EU Countries for Freelancers 2023 (TAX AND MORE).

Should be a good start ?

If anyone want to be part - let's challenge Dubai together

My problem is not tax rate.... biggest problem is Sharia country with monarchy.......
TV actor Amit Tandon’s estranged wife held up in Dubai jail since a month

Argument with government officials leads her to prison......this is not fiction stroy...it is reality.....things change very fast in dubai...she came out of prison after 10 month...
Consider this lady some sort small time celebrity......news paper headlines...put pressure on dubai police....that's why she released ...as they do not want negative pr.....imagine yourself in this situation.....do news paper make headlines for your arrest....
Nobody is going to save you if you are at wrong side of the law

 

[Konstanz]

Good for you, my post was about overall taxation.

Now add your personal income taxes to the 8.63% CIT and let me know about your total tax burden

In UAE it's 9% total

For those that want to pay less than 9% there are nearly zero better options.

I'm not saying there aren't options (if you want you can fly to Vanuatu), i'm talking about better options meaning options with the same taxation level, networking opportunities, lifestyle and so on.

I don't see them but i'm sure you can englight us.

This tax will clean out some rich / quality people for sure.
Why you need Dubai, if you have money for Monaco?

About lower than average person this all bureaucracy (not the 9%CIT itself) will not be worth hassle. Better just do Cyprus/Malta/Estonia etc.

Btw Estonia has 0% profit tax. You only pay 20% when you payout dividend to yourself!


Well maybe for Russians or some average African businesses men this would not change much, because they have no other options.
But if you have EU passport you have more options..

I think UAE government also count that with existing inflow from Ukraine and Russia they would do pretty well. Because they will pay tax anyway.

 

[alessio]

My problem is not tax rate.... biggest problem is Sharia country with monarchy.......
TV actor Amit Tandon’s estranged wife held up in Dubai jail since a month

Argument with government officials leads her to prison......this is not fiction stroy...it is reality.....things change very fast in dubai...she came out of prison after 10 month...
Consider this lady some sort small time celebrity......news paper headlines...put pressure on dubai police....that's why she released ...as they do not want negative pr.....imagine yourself in this situation.....do news paper make headlines for your arrest....
Nobody is going to save you if you are at wrong side of the law

Please stick to the topic -

We are talking about taxation.

I don't see the interest at just bringing a piece of article from 2017 - As a reminder, Europe confiscated asset from Russian's and I believe Russians consider this move much more as a "monarchy" than what you are trying to put on the table with your paper.

Let's challenge Dubai and find better place to setup with professional arguments, all together !

 

[darkred]

My problem is not tax rate.... biggest problem is Sharia country with monarchy.......

Why do you care about the tax increase then? lol

 

[troubled soul]

Why do you care about the tax increase then? lol

Before this tax....you do not need to face any government officials...just pay renewal pay...spend some time in every six months..that's it
..now you have to deal with lazy government officials........do not get me wrong but government freebie and easy money spoiled local emirati......they hardly work...95% offical are good for nothing....tax offices are also run by these guy... As you run a business you know how many issue will come for filling the tax return......any argument with official directly put you in jail...... I am not expert or professional....but this is my opinion..... believe who actually live in dubai...will agree with me without any issue

 

[Konstanz]

Why do you care about the tax increase then? lol

I think his idea is that with this 9%CIT comes bunch of other responsibilities:
1. Complex compliance with 9%CIT. Not clear rules and as always no one can tell in UAE how the law works.
2. Accounting requirement
3. possible audit requirements
4. Possible tax audits by the government? If there is tax, they can check if you correctly paid tax or not..
This can be very problematic in UAE! In Sharia country..

All these risks together makes not worth hassle

 

[jafo]

Now add your personal income taxes to the 8.63% CIT and let me know about your total tax burden

I made this comment exactly one week ago:
Wealth Tax 0.3% and inc. tax on tiny salary

The thing is, most people forget how independent and resourceful the Swiss are (I am NOT Swiss, btw and I'm NOT selling anything)

Everything is a deductible expense in Zug's company. Every.little.thing. I'm also capped at the forfait level!

What is my overall burden? Very little. There is a fair-warning doctrine in Switzerland, so I don't have to worry about tomorrow with a surprise announcement.

NGL, that 0% was looking GREAT and I was willing to do it 100%. I'd pocket a few extra million per year. Very appealing considering that NOBODY, NO government, regardless of their promises and laws and jurisprudence will take care of their older population when the time comes. This is from experience!

But now, why would I want to lose the European/Swiss credibility and replace it with a "tainted" place to save a few measly dollars??? Assuming I am able to even save that much...

It's like trading in my hot, young 26-year-old Scandinavian supermodel costing me $4M/year for some 60-year-old below-average Middle Eastern woman with 6 kids that will cost me $3.5M per year). Like WTF??? Who does this?

 

[Martin Everson]

But as long as there are no laws in place regarding how much a sole owner can take out as a salary, it shouldn't be an issue to stay below the 375k AED bracket.

Whether that is a $200k salary or a $5M salary.

At least a temporary solution for most of us that are "stuck" until we figure out something else.

Am I right?

Go ahead and try this...lol. I wrote the below on Feb 2022 in relation to paying out profits as an excessive salary:

Expect the UAE to enact tax anti avoidance legislation at some point maybe even adopt GAAR. This behaviour you describe will fall under GAAR as an abusive practice to reduce your tax base by using an excessive salary. I wouldn't do this in a place like UAE until they publish there CT compliance obligations and penalties.

Since then on Dec 2022 they adopted GAAR under Decree Law 47. See Article 50.....

https://mof.gov.ae/wp-content/uploads/2022/12/Federal-Decree-Law-No.-47-of-2022-EN.pdf

So basically any excessive salary will run foul of GAAR as an abusive practice designed to reduce your tax base under Article 50. You may want to see what the penalties for doing so look like in UAE before trying your luck. And as KPMG says also below they closed doors on those thinking to use multiple companies to stay below thresholds:

"If a person with total revenue of more than AED 3 million artificially separates his/her business to claim benefits under Small Business Relief, it will be considered an arrangement to obtain a Corporate Tax advantage under the General Anti-Abuse Rules (GAAR) set out in Article 50 of the Corporate Tax Law."


Bottom line is UAE will NO longer be the wild west playground it once was. As I said ages ago on this forum the UAE is going to change once OECD get on them - which they have. What UAE wishes to do tax wise is irrelevant once OECD tell them what to do.

The only thing I underestimated is the speed of the changes. But in a dictatorship changes can happen extremely quickly as we have seen. People just need to get their head around these tax changes and stop thinking some Sheikh has your interests at heart.

 

[stivemoose]

Hi there,
I've gone through the entire post, but I feel like there's still something I'm not quite grasping. I'm in the consulting business, providing IT services internationally, not in the UAE.

If my Free Zone (FZ) company, doesn't engage in any trading activities during the year, and also create a Limited Liability Company (LLC) in Delaware, which I use for my professional dealings isn't that the best solution? Becuase If I distribute profits from the Delaware LLC directly to my personal bank account as dividends, I'd be able to bypass the 9% tax, given the distinct nature of these two entities.

Is there something I'm not accounting for in this scenario?

Still missing if I move to Dubai and I use this setup I'd be tax free or not I should still pay the 9% corporate tax even if I don't use the UAE company?

 

[Konstanz]

Still missing if I move to Dubai and I use this setup I'd be tax free or not I should still pay the 9% corporate tax even if I don't use the UAE company?

Yes you would be taxed 9% because deleware company would be managed in UAE

 

[jafo]

"If a person with total revenue of more than AED 3 million artificially separates his/her business to claim benefits under Small Business Relief, it will be considered an arrangement to obtain a Corporate Tax advantage under the General Anti-Abuse Rules (GAAR) set out in Article 50 of the Corporate Tax Law."

#Bingo!

This is so perverse and devious! It essentially ERODES the personal income tax of zero!

In other words, I have a few clients who will NOT do business with a company for certain products. They want to pay into my personal account. They want me to be personally liable for the products. In the UAE, I'd be up sh1ts creek without a paddle! In Zug, I made this clear BEFORE incorporating and using a tax ruling and because of forfait, they accepted it. It doesn't really matter, because due to forfait, I pay one amount and that's that!

PS. I still book it under the Zug business though, so Zug and CH still gain a huge amount for free. And it's cheaper than the 9%

 

[Marzio]

Why you need Dubai, if you have money for Monaco?

Monaco?

Do you know what F1 drivers, football players and athletes that move to Monaco have in common?

They all work OUTSIDE Monaco.

If you have a business with staff employed and you aren't some crypto kid or investor that receive passive income Monaco isn't an option because you can't work in Monaco without attracting CIT.

But if you have EU passport you have more options..

Which are?

Malta? 5% but you'll live a miserable life

Cyprus? 15% total tax

Estonia? 20% total tax (which will be raised to 22% in 2024)

Wealth Tax 0.3% and inc. tax on tiny salary

That's what i am talking about.

Your wealth is in the company, not in your pocket and look i not disagree necessarily with that approach but at some point you'll want to take out money from the company and then you'll be taxed.

Also there are some businesses where you want to take out money from the business as fast as possibile so a tax-fre/low tax residency VS medium-high tax residency make a LOT of difference to the bottom line?

why would I want to lose the European/Swiss credibility and replace it with a "tainted" place to save a few measly dollars

I wonder why people want to kill themselves in such a "good country". cit. Martin Everson

 

[jafo]

Your wealth is in the company, not in your pocket

Nope! My TOTAL wealth is in my name (+70%). Not the company!
The company has its own wealth which is the business it generates now in Zug.
BTW, the business has NOTHING to do with Switzerland. I purchase in Asia and ship to Latin America and other Asian countries. Some EU buyers too. I can do this from any CBI island or Monaco.

at some point you'll want to take out money from the company and then you'll be taxed.

Yeah! Good luck with that! I think you missed the part of the forfait.

 

[Fred]

It’s sooo funny because I’m EXACTLY in the situation you mentioned just before as an example lol.

Apart from that, I see everybody talk about the 9% corporate tax, but let’s remind that it’s only if you make more than 375K AED profit, am I wrong?

Then everybody will just pay big salaries to themself to stay below 375K AED and avoid the 9% tax. Am I wrong?

(but it seems too easy, I doubt it will last)

That's correct.

See here our latest post:

DLS Dubai Statement: UAE clarification of Freezone Qualifying Income

1. CORPORATE TAX: You are only paying 9% Corporate Tax if you are running one of the Excluded Activities. List of Excluded Activities: (a) is referring to Mainland and International Business. No matter if you are doing E-Commerce or Marketing Services - it's a Qualifying Activity and...

www.offshorecorptalk.com

"3. BECOMING CREATIVE"

General Manager average salary is 60000 AED + another 10000 AED allowance per month - total 840000 AED per Year in addition to the 375000 AED Tax Free Profits.

So in total even assuming someone qualifies for 9% Corporate Tax can make the first 331000 USD Tax Free!

-------------------------------------------------------------------------------------------------------------------------------

We are working on some Blog Article but I share you here already a table we did created - calling it "worst case tax".

As much as I like this forum but this thread is just bashing the UAE - and it's even more funny if you know the numbers.

Just as a hint before you are looking at the below table - certain banks do some kind of enhanced KYC when you cross 4M AED turnover - we see this from clients less then 10% per year - it's questionnable why everyone is now acting as if they would make 100M AED turnover, 15M AED profit and having a 7 figure tax bill to pay.

Yes, yes... frame it again that we at DLS Dubai can't be neutral because of our business nature but as I mentioned earlier - "keep the church in the village"

"Worst Case Tax" Table

So if you are making 10M AED turnover you can get out 2.6M AED tax free which is 700K USD (!) tax free with an effective tax rate of 3.9% assuming 9% CT for 99% of FZCO's - which we still see different and elaborate in our blog article soon why! The salary is industry standard and no bulls**t with unrealistic salary - so even if they limit the salary this is still valid - not to mention every 2nd client has his wife employeed as well etc.

But yes let's move all now to Monaco and get hammered with 5000-10000 EUR rent for a 30m2 apartment to "just" have 0% income tax - which we have in Dubai anyway - in combination with 20-30% CT.

 

[sergeylim88]

Nope! My TOTAL wealth is in my name (+70%). Not the company!
The company has its own wealth which is the business it generates now in Zug.
BTW, the business has NOTHING to do with Switzerland. I purchase in Asia and ship to Latin America and other Asian countries. Some EU buyers too. I can do this from any CBI island or Monaco.

Yeah! Good luck with that! I think you missed the part of the forfait.

you pay corporate tax on profits
when you send profits to your personal account it becomes a dividend
don't you pay some tax on a dividend as a Switzerland's resident?
did you sign a lump sum tax agreement with canton maybe, that covers that?

 

[Konstanz]

Monaco?

Do you know what F1 drivers, football players and athletes that move to Monaco have in common?

They all work OUTSIDE Monaco.

If you have a business with staff employed and you aren't some crypto kid or investor that receive passive income Monaco isn't an option because you can't work in Monaco without attracting CIT.

Hows different having freezone company than having company in Malta? I don't understand. Explain men in simple words.
If you have real business with real employees hows Dubai freezone better than Malta, Cyprus, Estonia?

Also you cannot touch gambling and similar stuff in Dubai.

 

[jafo]

a lump sum tax agreement with canton

#bingo!

when you send profits to your personal account it becomes a dividend

At this moment I don't. Why should I? I don't need the money!

 

[SasuT]

#bingo!


At this moment I don't. Why should I? I don't need the money!

I had a similar system in France. 0% corporate tax.
The thing is, at some point you’ll have to pay yourself. And here you pay a good dividend tax. In France it’s 30%. What about your case?