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Possible workaround for new UAE Corporate Tax?

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imtaku

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Jan 2, 2023
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#1
Hello everyone,

Just like everyone on this forum, I'm quite concerned about the new 9% corporate tax in UAE, and after reading for a few days, there is one question that I still question myself a lot:

If personal income is not taxed, what if all my client payments come directly to me (and not my business) — Would that be okay and I would be tax exempt, or what is the problem with that?

To give more context:

My FZCO sponsored my VISA, so I'm a resident for 2 years and I can renew after that. I have a business bank and 3 personal bank accounts, and from what I can understand, my clients can easily do a SWIFT transfer to my UAE personal account, and that way there is no revenue in my Freezone company, so there is no corporate tax to pay for.

Is my assumption right?

Also, does anyone knows any good tax consulting company in the UAE? I used to work with DLS Dubai, but as they are now closed, I'm looking for another advisor to get paid help from.

Thank you
 
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#2
Bank accounts have nothing to do company revenue. The money can arrive anywhere. What matters is who the contract is with and who issues the invoice. If it's done through the company it's company revenue. Do note that tax is paid on profit, not revenue.
 
#3
imtaku said:
Hello everyone,

Just like everyone on this forum, I'm quite concerned about the new 9% corporate tax in UAE, and after reading for a few days, there is one question that I still question myself a lot:

If personal income is not taxed, what if all my client payments come directly to me (and not my business) — Would that be okay and I would be tax exempt, or what is the problem with that?

To give more context:

My FZCO sponsored my VISA, so I'm a resident for 2 years and I can renew after that. I have a business bank and 3 personal bank accounts, and from what I can understand, my clients can easily do a SWIFT transfer to my UAE personal account, and that way there is no revenue in my Freezone company, so there is no corporate tax to pay for.

Is my assumption right?

Also, does anyone knows any good tax consulting company in the UAE? I used to work with DLS Dubai, but as they are now closed, I'm looking for another advisor to get paid help from.

Thank you
Click to expand...
UAE CIT is even applicable for physical persons. So, no workaround here
 
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#4
Larin said:
Bank accounts have nothing to do company revenue. The money can arrive anywhere. What matters is who the contract is with and who issues the invoice. If it's done through the company it's company revenue. Do note that tax is paid on profit, not revenue.
Click to expand...
But what if my invoice is done in my personal name, not the company name? Would that qualify as personal income instead?

Konstanz said:
UAE CIT is even applicable for physical persons. So, no workaround here
Click to expand...
Can you be so kind as to provide some more context or this, or provide any sources so I can learn more? Appreciate your response.
 
#5
imtaku said:
But what if my invoice is done in my personal name, not the company name? Would that qualify as personal income instead?


Can you be so kind as to provide some more context or this, or provide any sources so I can learn more? Appreciate your response.
Click to expand...
You as a person would be subject to CIT

1691520790612.png


All answers are here:
 
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#7
imtaku said:
Can you be so kind as to provide some more context or this, or provide any sources so I can learn more?

I thought that the tax only applied to companies, and not personal income? If you can share some link to learn more, I would highly appreciate it.
Click to expand...
It also applies to personal business income. Look up
 
#8
imtaku said:
But what if my invoice is done in my personal name, not the company name? Would that qualify as personal income instead?
Click to expand...
There are two things here:

1) Most likely under the terms of your UAE visa you are employed by the company and are not authorized to do self-employment/engage in independent visa activities, etc. So in order to avoid paying tax, you may be in breach of your visa and liable for deportation, or worse (not sure what the penalties are)

2) At this point you would effectively be a self-employed person (issuing invoices in your name, performing services). As per the link others have shared (https://mof.gov.ae/corporate-tax-faq/
point 37 is particularly relevant) you may be liable for CIT depending on the business activity you do.
 
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#9
The point here is, the source of your income, is it a salary/dividend or is it through a business/corporate activity? As you described above, UAE tax authorities, in that case, will consider you a freelancer. In short, the activity that results in an income is important.

There may be workarounds through Goods distribution, involving entities from two countries. Country A manufactures and Country B buys the product, you get paid, the profit is exempted. Country B company can be a parent company of a US LLC (Subsidiary, not a branch).

There are so many other creative ways.
 
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#12
It's possible to apply for permission to work an additional part time job, it costs something like 500aed, can't recall the exact amount.

Then work your main job for FZCO taking a handsome but market appropriate salary, expenses etc - and for your second part time job you could work for a US LLC as example under a proper contract and being sure to avoid PE, taking additional salary income free of tax.

Just spitballing here but it IS possible to do salaried work for two companies one UAE one offshore - provided you apply for it beforehand. There must be smart ways to structure this second job employment that helps reduce overall profits landing in UAE
 
#13
If the US LLC has no PE and is not managed from the UAE, then there is no need for such acrobatics. Just pay out "dividends" from the US LLC and it should be fine.
I still think that if you really want to stay in the UAE, this would be the cleanest solution. If you have a Golden Visa, you wouldn't even need a UAE company.
 
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#14
JustAnotherNomad said:
If the US LLC has no PE and is not managed from the UAE, then there is no need for such acrobatics. Just pay out "dividends" from the US LLC and it should be fine.
I still think that if you really want to stay in the UAE, this would be the cleanest solution. If you have a Golden Visa, you wouldn't even need a UAE company.
Click to expand...

What's the actual definition of "managed" in this legal sense?
I mean, can you be the manager but when you're in the UAE, you're actually not doing any active work through the LLC?

Alternatively, if your LLC needs management etc, can't the UAE CO manage it? Then obviously make sure you stay under the 375k AED profit per year in the UAE CO?
 
#15
kekmaw said:
What's the actual definition of "managed" in this legal sense?
Click to expand...

Nobody knows. We're in unchartered territory. It's like everything in the UAE, you never know if you're compliant or just not caught yet. Or if you were compliant before, but they changed how they do things five minutes ago.
That's just the way things are in the UAE.

kekmaw said:
I mean, can you be the manager but when you're in the UAE, you're actually not doing any active work through the LLC?
Click to expand...

In other countries, this wouldn't fly. If you are tax resident in a country, they will typically assume that the company is managed from that country, unless you can either show that there is someone else managing the company (you are only a passive investor), or maybe that there actually is an office in another country that you commute to.
But like I said, we don't know how the UAE will handle this. The safest option is hiring someone in a tax free country to be the manager on paper.

kekmaw said:
Alternatively, if your LLC needs management etc, can't the UAE CO manage it? Then obviously make sure you stay under the 375k AED profit per year in the UAE CO?
Click to expand...

Then what is the point of the US LLC? You could simply use the UAE company directly.
Also, then the US LLC would be managed from the UAE, so it would be subject to UAE corporate tax.
 
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#16
JustAnotherNomad said:
If the US LLC has no PE and is not managed from the UAE, then there is no need for such acrobatics. Just pay out "dividends" from the US LLC and it should be fine.
I still think that if you really want to stay in the UAE, this would be the cleanest solution. If you have a Golden Visa, you wouldn't even need a UAE company.
Click to expand...
Seems the best solution for now. In case it doesn't fly, you'd pay 9% CIT as if it was an UAE company I guess. Also seems best solution along the Small Business Relief up until 2027. I'd do this latter rather than the LLC if one is below the requirements.
 
#17
BigUnicorn said:
In case it doesn't fly, you'd pay 9% CIT as if it was an UAE company I guess.
Click to expand...

Plus fines, potentially. But I'd say the general risk is rather low if you don't have customers in the UAE, only work from home etc.

BigUnicorn said:
Also seems best solution along the Small Business Relief up until 2027.
Click to expand...

What will you do after 2027? Claim that you're suddenly not working from the UAE anymore? Or pay the tax?
Also keep in mind, there is no limited liability in the UAE.
 
#18
JustAnotherNomad said:
Plus fines, potentially. But I'd say the general risk is rather low if you don't have customers in the UAE, only work from home etc.



What will you do after 2027? Claim that you're suddenly not working from the UAE anymore? Or pay the tax?
Also keep in mind, there is no limited liability in the UAE.
Click to expand...
I'm not considering it personally (for now at least). Just assessing situation.

To answer your Q: close up shop and move.
 
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