Dubai company tax reduction via salary

[cardholder]

Now that most free zone dubai companies have to pay a 9% tax on their profits, can some or all of it be offset via a salary payout to a resident sole owner?

For example:
one is a resident of dubai and the sole owner, director, and employee of their own dubai company.
The dubai company makes 1M USD in profit, then pays a 1M USD salary to the person, reducing its corporate income to 0, paying 0 in tax.
The person receives the 1M USD and pays 0% on their salary (personal income in dubai is taxed at 0%)

is this correct, or is there a nuance with personal taxation with the new taxation rules?

 

[troubled soul]

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

"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."

 

[EliasIT]

I believe that the vast majority of users commenting this and other threads about the 9% tax rule and the trashhold mentioned above of 3 million AED ~ 816K USD is something that won't hurt them. They would easily be able to navigate through to a nice 0% tax if they get professional help.

AMEN

 

[troubled soul]

I believe that the vast majority of users commenting this and other threads about the 9% tax rule and the trashhold mentioned above of 3 million AED ~ 816K USD is something that won't hurt them. They would easily be able to navigate through to a nice 0% tax if they get professional help.

AMEN

I think for this type of turnover USA LLC is best and cheaper with zero headache.....If you live in territorial tax country

 

[csp dubai]

so over 816000 tax will apply 9%?
is true management consulting is tax free any more tax deductible?

 

[Martin Everson]

For example:
one is a resident of dubai and the sole owner, director, and employee of their own dubai company.
The dubai company makes 1M USD in profit, then pays a 1M USD salary to the person, reducing its corporate income to 0, paying 0 in tax.
The person receives the 1M USD and pays 0% on their salary (personal income in dubai is taxed at 0%)

is this correct, or is there a nuance with personal taxation with the new taxation rules?

I answered this sort of action in below thread last week. This is 100% not possible.

UAE clarification of Freezone Qualifying Income

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...

www.offshorecorptalk.com

If you just used common sense you would realise that if it was possible to reduce corporate tax to zero simply by paying out all profits as salary then everyone in the world will be doing it. Then there would be zero corporate tax to collect anywhere on the planet....lol. GAAR is real.

P.S If the idea sounds too good to be true it probably is not true.

 

[Gediminas]

Now that most free zone dubai companies have to pay a 9% tax on their profits, can some or all of it be offset via a salary payout to a resident sole owner?

For example:
one is a resident of dubai and the sole owner, director, and employee of their own dubai company.
The dubai company makes 1M USD in profit, then pays a 1M USD salary to the person, reducing its corporate income to 0, paying 0 in tax.
The person receives the 1M USD and pays 0% on their salary (personal income in dubai is taxed at 0%)

is this correct, or is there a nuance with personal taxation with the new taxation rules?

Hey,

UAE implemented transfer pricing rules, meaning that all transactions between associated persons should be subject to Arm’s length. It also applies to salaries.

In other words, tax authorities might say, that the salary is too high.

Whether they do this or not it is very hard to say.

 

[manukahoney]

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It seems that something between 50k and 100k monthly for a CEO is a reasonable number.

 

[JustAnotherNomad]

Why would anyone take such a risk? That's beyond me. If you make a lot of money, just build some substance abroad and pay dividends to yourself. No need to even declare dividends in the UAE.

 

[cardholder]

I answered this sort of action in below thread last week. This is 100% not possible.

UAE clarification of Freezone Qualifying Income

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...

www.offshorecorptalk.com

If you just used common sense you would realise that if it was possible to reduce corporate tax to zero simply by paying out all profits as salary then everyone in the world will be doing it. Then there would be zero corporate tax to collect anywhere on the planet....lol. GAAR is real.

P.S If the idea sounds too good to be true it probably is not true.

My appologies for having missed your earlier post. I just read the GAAR and I'm trying to understand it.

Does it mean that any salary to a sole owner operator willtrigger the Article 50 anti abuse rules, and that all salary payments will be taxed at 9%?
or a more reasonable and moderate salary of, say, 300k on 1M of profit (as per the example), would result in 0% tax on personal salary income, and 9% corporate tax on 700k?

 

[ShillGates]

Why would anyone take such a risk? That's beyond me. If you make a lot of money, just build some substance abroad and pay dividends to yourself. No need to even declare dividends in the UAE.

where are you referring to? dividends are after corporate tax

 

[JustAnotherNomad]

The simplest solution would be something like a transparent US LLC with a manager in some random country with very lax rules for territorial taxation.
Transparent entities are only taxed in the UAE if they are managed from the UAE or there is a permanent establishment.
So you just need a good explanation of how you're not working for that company, at least not from the UAE.

If you start declaring your income to the UAE, you can expect that they will come after you eventually. Better not to declare anything and remain under the radar.

 

[ShillGates]

if thats what you thinking, crs will help them anyway

The simplest solution would be something like a transparent US LLC with a manager in some random country with very lax rules for territorial taxation.
Transparent entities are only taxed in the UAE if they are managed from the UAE or there is a permanent establishment.
So you just need a good explanation of how you're not working for that company, at least not from the UAE.

If you start declaring your income to the UAE, you can expect that they will come after you eventually. Better not to declare anything and remain under the radar.

 

[JustAnotherNomad]

Why would CRS be a problem? By declaring a UAE salary, you're saying you're working in the UAE. Having an offshore account is not a crime in the UAE.

 

[ShillGates]

CRs will give info to uae , and if you say "Better not to declare anything and remain under the radar" - then dont use uae residence.

but yes other than that nothing illegal, its more about that tax issue

 

[JustAnotherNomad]

It's not that difficult. UAE taxes local operations. Declare a salary and you have local operations. If at some point in the future they decide to introduce income tax, how believable would you be if you say you no longer have UAE operations?
By structuring your affairs in a different way, you have been a passive shareholder all along. Nothing wrong with letting the UAE know you make money abroad.

 

[Marzio]

The simplest solution would be something like a transparent US LLC with a manager in some random country with very lax rules for territorial taxation.

This could work (in theory) if:

1. you are some solopreneur guy that do affiliate stuff or crypto

Any other activity that relies on selling something, delivering something and supporting clients, at some point will attract PE somewhere.

2. you find a trusted manager in a tax exempt country or country with "laissez faire" tax rules

Easier said that done.

 

[JustAnotherNomad]

We're talking about the UAE here! Nobody is going to bother you. And there are corporate service providers that provide nominee directors.

 

[Marzio]

We're talking about the UAE here! Nobody is going to bother you.

Yes, we are talking about UAE, a jurisdiction that to this day is advertsing 50 years of corporate exemption for freezone companies.

The "nobody is going to bother you" it's a story that could change as fast as UAE CIT introduction

The Scout motto is "Be Prepared"

What i'm saying is that if you plan a move, plan for the worst and hope for the best.

And there are corporate service providers that provide nominee directors.

Yes and better to have those service providers in a tax free jurisdictions so that the company is managed from a tax free jurisdiction.

 

[JustAnotherNomad]

The "nobody is going to bother you" it's a story that could change as fast as UAE CIT introduction

The chances of them bothering you will be much higher if you declare a salary (active UAE income).

Yes and better to have those service providers in a tax free jurisdictions so that the company is managed from a tax free jurisdiction.

Obviously.