How UAE treats a US LLC.

[TRGali]

I feel to have read all the relevant posts on the forum + the UAE corporate tax law + their FAQ, and I cannot find any indication of how UAE would treat, let's say a US LLC that has a foreign director in a country that would not care much about PE. The US LLC being be owned as a single member by a UAE company, as a passive investor.

There is article 16 in the CIT law that refers to foreign partnerships and how they are treated. But definition of a foreign partnership as per the definition in the law is "A relationship established by contract between two Persons or more, such as a partnership or trust or any other similar association of Persons, in accordance with laws of a foreign jurisdiction." so there should be an association of two persons minimum for Article 16 of the CIT law to apply to US LLC (and it has only one member). If that does not apply, then am I right to sum up that at present, there is no information about how a US LLC should be treated (tax transparent / not transparent) and that... per default it would be treated as opaque?

Of course, that is all assumed that the substance / director for the LLC is strong enough so that UAE PE does not get claimed (because LLC owned by UAE company).

Have you guys found laws other than PE about the tax transparency of a US LLC ?

Ok after more work, I think UAE doesn't care to define a US LLC as tax transparent or not because UAE seems to now makes dividends (received from a foreign company) taxable by the UAE company that owns the US LLC. See Article 23), section 2) of the CIT law.

So that makes the setup UAE company owning a US LLC (or any tax transparent entity) not workable for sure for 0% tax.

My head is burning from all of this, any one can confirm or deny ? Just in case I made a mistake somewhere or missed something.

 

[emihunter]

if the foreign LLC is effectively owned and managed from UAE, then 9% UAE tax applies.

 

[TheCryptoAnt]

if the foreign LLC is effectively owned and managed from UAE, then 9% UAE tax applies.

This is, unfortunately, correct.

 

[TRGali]

I understand guys and agree, but what if it is managed abroad and only owned by a UAE corporate person (let's say free zone as a holding, where actually dividend may be tax free), and cannot produce a tax residency certificate from abroad. Does the tax transparency status of the US LLC makes it "de facto" taxable in UAE ? As I mentioned above, I could find UAE laws about partnerships (or any entity with association of 2 partners minimum) making such a tax transparent structure taxable in UAE. But never the laws mentioned how to treat a tax transparent entity with "an association of person" of 1 person.

 

[TheCryptoAnt]

I understand guys and agree, but what if it is managed abroad and only owned by a UAE corporate person (let's say free zone as a holding, where actually dividend may be tax free), and cannot produce a tax residency certificate from abroad. Does the tax transparency status of the US LLC makes it "de facto" taxable in UAE ? As I mentioned above, I could find UAE laws about partnerships (or any entity with association of 2 partners minimum) making such a tax transparent structure taxable in UAE. But never the laws mentioned how to treat a tax transparent entity with "an association of person" of 1 person.

I understand what you mean here and on paper I agree with you; no UAE management means no UAE tax (and dividend tax-free if FZCO is a holding corp). However, I don't think anybody in this forum can answer this properly. You might have to find an answer on the ground via tax lawyers or directly with the UAE FTA.

I have this exact set up running with a Seychelles IBC instead of a US LLC and havent been able to find a proper answer yet.

 

[Marzio]

what if it is managed abroad and only owned by a UAE corporate person

Good thinking

cannot produce a tax residency certificate from abroad

This is where the plan falls short

 

[FreedomSearcher]

How about I (as UAE resident) have my fully owned Hong Kong company managed from outside of UAE, and I am merely an advisor of the company?

There are also no operations or clients in Hong Kong or UAE.

Would this be a legal tax-neutral setup?

 

[Cloudbanck]

>cannot produce a tax residency certificate from abroad

This is where the plan falls short

Not necessarily. First of all, it is unlikely the UAE will require a tax residency certificate. And even if they ask, tax residency for who, for the US LLC or the manager? The manager could potentially show the he/she is a tax resident in the country he/she resides. And the US LLC is a US entity even if transparent, and can show annual filings to the IRS.

I still think there is a possibility that a gap opens up between the effective management and control rules, and the application in practice. That they accept very little as evidence of a manager abroad, or are very lenient about what effective management and control in the UAE means. In most of the world outside the West, a foreign company managed from country X without any local office or local activities or anything, is de facto left alone and not taxed.

 

[Alexmorgan]

I have many US LLCs and i live in Bahrain

No one is taxing me as there is no income tax in Bahrain and since the company is operating in US im legally not subject to any taxation in this country

Same with who live in Qatar , Saudi , Kuwait and Oman

But since UAE is taxing people on this way that means matter of time before you get this in other GCC countries

For now if what the people ubove saying is true then i recommend you to move to Bahrain as its simple to get residence there

 

[Marzio]

it is unlikely the UAE will require a tax residency certificate

Be assured that they will ask you for some kind of proof to exempt you from paying CIT.

Telling bedouins that you have a manager somewhere over the rainbow without proving them that you have a PE in another country either by showing tax ID of the foreign country or taxes paid in the foreign country will not save you from paying UAE CIT.

 

[Alexmorgan]

if the foreign LLC is effectively owned and managed from UAE, then 9% UAE tax applies.

I dont know how can this happen?

I have a company in US and in residing in UAE

How come they tax me CIT while i dont have a company in UAE ?

 

[sergeylim88]

if you spend less than 183 days most likely it won't happen (this is the case for people who have companies in the UAE and visas, while not living there full time)