ESR and UAE

[JackieTsan]

A friend of mine told me that we can't invoice from a ESR (economic substance) company in the islands, to a company in UAE (offshore Rak), because the company in the islands have ESR.
I am trying to research but I can't understand how and why they are related? I mean why I can't invoice (sell services) to a UAE company from a ESR island country ? (technology services)
I'd appreciate if someone can explain.

* and to add : Distribution and Service Centre Business what is this? Trying to understand and I read different things like :
any distribution and service centre activity performed by it for a foreign connected person is:
not its main business activity; and
charged to that foreign connected person at cost or less...

Who is considered foreign person?

So according to ESR having a company and providing IT solutions/services/platforms is one of the ESR categories (which then requires all this management or have penalties etc?)

Thank you

 

[daniels27]

What is the island?

ESR world like this
1. You have economic substance? Yes, you are fine. No, go to 2.
2. Are you doing any regulated activities? No, you are fine. Yes, you are f****.

What are regulated activities? You can check the whole list online. For transactional companies, the one you posted is the relevant one. It means in short that you CANNOT
1. Use the island company to perform services for a connected company. Basically you cannot shift profits from a high tax company to the tax free island by performing services at very high cost.
2. Use the island company to buy goods from a connected company. Basically you cannot shift the profits from a high tax company to the low tax island by selling all you goods for very cheap.

The question now is whether the island company and the UAE one are connected. Are there the same owners or are they brothers, close business partners etc.? If not, you don't need to worry. If yes, the island company cannot perform services for the other company and it also cannot buy goods from the other company.

And foreign means that if the other company is also on the same island, it would not make any difference in terms of tax, hence you can buy and sell as much as you want between local companies.

 

[JackieTsan]

Thank you very much, clear! So the problem is if both companies are mine. But if this company invoice is directly from a European customer it's not any problem, correct? IT services, platforms, cloud etc. In this case (selling to EU customers), do I have to do ESR reporting? They always (accountant) telling me to do the ESR and put NO so I don't need to do any reporting, but my services are not in "Distribution and Service" ?
thank you

 

[daniels27]

Now in your case there is technically no problem as the UAE company is also tax free. Hence you are shifting profits from the tax free island to the tax free UAE. But they is no exception for that. If your UAE company is connected to the island company, you cannot do it.

Maybe give us some more detail about the owners, UBO, shareholders, authorised persons of the companies. Any connections there?

Thank you very much, clear! So the problem is if both companies are mine. But if this company invoice is directly from a European customer it's not any problem, correct? IT services, platforms, cloud etc. In this case (selling to EU customers), do I have to do ESR reporting? They always (accountant) telling me to do the ESR and put NO so I don't need to do any reporting, but my services are not in "Distribution and Service" ?
thank you

If the invoices are between the ESR company and an unrelated client, there is no need to worry.

Just don't use the ESR company to sell services to your company. You can buy service from your company. Any don't use the ESR company to buy goods from you company. You can sell them goods.

 

[JackieTsan]

I understand. I am looking for a way to take the profits from UAE (besides the 9% tax which is not important as i don't reach the 390K AED, there is other issue too that I can't directly take from UAE) so I need re-invoice through another 0% region. So I understand I need to find an Island or somewhere without reporting, without audit, tax filling AND without ESR... correct?

 

[daniels27]

Yes. But this is hard to find. Maybe Singapore offshore. But it won't be cheap. Maybe Bahrain self-employed?

How much is it? It is a one off or continuously?

 

[JackieTsan]

First of all, thank you very much for your time and help @daniels27 . It's continusly. No problem at all if I can open a new company somwhere that is compatible with Europe and invoice directly the customers there (and just close the UAE that is headache from now on). But in which country I can open a 0% easy-going company that is white list in Europe? And then invoice directly the customers from there and will not have any issue. And as I undertsand no problem with ESR if it's nothing to do with my own other companies invoicing. thank you again!

 

[daniels27]

0% and easy going. I have not found that yet. They are all wasting my time with compliance.

Are you resident in a 0% place? Then some transparent US SM LLC. If not, then maybe Singapore?

Let me think.

 

[JackieTsan]

I am resident in a 0% place but I'm still trying to figure this out Assuming yes, what is the US SM LLC? In this ccase I need to open Tax ID in USA, correct? Singapore is expsnsive I think and has tax filling and returns -> more costs... correct?

Thank you so much!!!

 

[daniels27]

Offtopic: Which 0% places would you personally recommend for living?

You are welcome. I think the US SM LLC may work. But you need to check the laws in your country as those SM LLC often caused issues in Europe where they were suddenly classified differently in the home country. (i.e. they may become a company in your residency and then be taxable. Then we are almost back at the discussion in the HK topic.) For this company, you will have to file taxes in your residency. All income is personal income in your home. It may not be a good option if you have no tax home to report it.

For the US SM LLC, you need to incorporate in WY, I posted the links just days ago to the two companies which are cheapest in this field. Then, you need to do the US UBO filing and some filings each year (don't forget form 5472). Yes, you will also need an EIN for the company, but this normally is done with one phone call.

Singapore is a real company (not disregarded entity as the US SM LLC). I think the fees start around 3000 USD per year. Here, nobody will ask questions. You could keep the money there. Just one caveat: you cannot have Singapore customers/suppliers and cannot remit the money to a bank in Singapore.

You mentioned Bahrain in the HK topic. I was talking to Sovereign this morning and they said Bahrain could also be an option. Have you looked into this? What is your opinion? Maybe as troublesome as UAE?

 

[JackieTsan]

Im looking exactly the same. 0% Tax, cheap and safe country (and some good enterntaiment too ) Does not exist - with 0% worldwide income tax. There are some that people THINK that exist but they will face surprises because there are small letters that they don't know.

Singapore is a real company (not disregarded entity as the US SM LLC). I think the fees start around 3000 USD per year. Here, nobody will ask questions. You could keep the money there. Just one caveat: you cannot have Singapore customers/suppliers and cannot remit the money to a bank in Singapore.

I don't think it's only $3K, you need Audit, tax filling and a lot more, correct? and who says they will accept the 0% and you will not have surprises?

 

[daniels27]

Audit is not required if turnover or assets stay below 10M SGD. I would generally trust the big ones like Sovereign. I think maybe you will need some more, but not more than 5M USD.

Have you tried UAE, Bahrain, Kuwait, Saudi, Qatar? How are those for living?

 

[JackieTsan]

Audit is not required if turnover or assets stay below 10M SGD. I would generally trust the big ones like Sovereign. I think maybe you will need some more, but not more than 5M USD.

Have you tried UAE, Bahrain, Kuwait, Saudi, Qatar? How are those for living?

Thabk you very much once again!
Yes lived everywhere expect Bahrain , but been several times. Saudi has amazing places to go, beaches etc. see the new promo with Messi ..
Dubai and UAE generally is the best because you have lower prices and best options for everything.
Water has the Souq, how many times to go? Beaches to swim are far from Doha and is hard to leave where the beaches are..
Saudi you can live in Jazan which is amazing an has nice beaches. Depends on what you like. UAE for me is always on the top but new tax is problem.
Getting back to Singapore company, I do need to file tax also every year, correct?

I see that Singapore has 17% tax and I read of a lot of expenses that make big total..
even if it can go 0% I’d prefer a different option, any ideas for any other region?

 

[daniels27]

Singapore is taxfree, but you need local resident and accounts. It will cost something.

Alternatives, how about Bahrain company? Have you checked that one?

 

[JackieTsan]

Never checked. Can do everything remotely ? I tried Qatar but huge requirements and need local visit, and big costs.. Bahrain can be done remotely ? still has audit, file tax etc ? thank you

 

[daniels27]

I just emailed Sovereign in Bahrain. I will keep you posted on their answer. I think it is indeed tax free, the rest, we will find out.

How long does it take from Bahrain to Doha by anything else than air?

 

[JackieTsan]

according to google maps is 500KM - 5hrs but you have to drive through SA,. Never done it, would be a great trip though but not for always!

 

[daniels27]

Oh, then better wait for the causeway. It should be faster then.

Bahrain is really tax free. The ongoing costs are:

• A financial audit report: around $1,350 USD
• Official address/desk: $4,770 USD
• License renewal fee: around $600 USD

Sounds more expensive than Singapore but with much less attractive banking options. If you have any experience in the country, I would guess that you can bring down the costs to roughly 30% if you are renting a lousy desk somewhere. But my main concern is suitable banking. With Singapore, there are many EMIs which are open and give you bank accounts pretty much all over the globe.

What is your experience with Bahrain/UAE banking options? Any big EMI you are using?

 

[JackieTsan]

And besides these costs, what is the initial cost to form the company and any next renewal? I have wise its ok but i don't know if works for Bahrain.

 

[daniels27]

And besides these costs, what is the initial cost to form the company and any next renewal? I have wise its ok but i don't know if works for Bahrain.

I think around $15000. There probably are cheaper alternatives if you hire local dudes. But the main question is about banking, because without banking, I do not need to waste the time looking for options.