Possible workaround for new UAE Corporate Tax?

[Don]

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?

Copying some relevant information from UAE lawyers here in regard to shadow directors:

The Bankruptcy Law sets outs a number of circumstances in which managers/directors of a company that is found bankrupt may become personally or even criminally liable. Article 196 of the Bankruptcy Law defines managers/directors as "any person working at the entity" and "playing an active role in the decision-making process", including any person" under whose directives and instructions the Managers operate."

Therefore, a person, such as an external advisor may be found to be a director of a company for the purposes of the Bankruptcy Law if it can be shown he or she plays an active role in the decision-making of that company.

In our experience, most directors of international businesses will be broadly familiar with their obligations as directors under the laws of the country where the parent company is domiciled. However, it is important to keep in mind that they also need to be concerned with their duties and responsibilities and potential personal liability under the Bankruptcy Law ifi) they are appointed as a director or a general manager of a UAE subsidiary; or(ii) they are effectively directing the UAE subsidiary (even when not officially appointed as a director of that company).
Given the broad wording of Article 196 of the Bankruptcy Law, we believe that there is also a real risk that the UAE Courts may be prepared to find a parent company of a bankrupt subsidiary liable for the debts of that subsidiary if it can be shown the decision making of the company was done at the parent company level and such decisions were not compliant with the Bankruptcy Law.

In addition to parent companies, creditors of a bankrupt company may also expose themselves to potential directors' duties and liability risks.

Such risks may particularly arise in the context of financially distressed or potentially insolvent companies, where the largest creditors often drive the attempts to restructure and rescue the company. Creditors need to be very careful not to cross the line in and actually make any decisions for a company. In summary, when we ask to whom directors' duties under the Bankruptcy Law apply, we need to ask who is actively involved in the decision-making of the company rather than just checking who is appointed as the general manager or director.

To summarize, up to two years imprisonment is not overly difficult to achieve if things go wrong.

 

[JustAnotherNomad]

Exactly, that's why I really don't understand why anyone would want to use a UAE entity for anything. There is also no limited liability.

 

[sinos]

Copying some relevant information from UAE lawyers here in regard to shadow directors:



To summarize, up to two years imprisonment is not overly difficult to achieve if things go wrong.

Yeah, but they have published a list of penalties regarding CIT, which includes tax evasion, but none of the penalties have a prison provision, it's all about money.

 

[Don]

Yeah, but they have published a list of penalties regarding CIT, which includes tax evasion, but none of the penalties have a prison provision, it's all about money.

The intention of my post was to highlight that when your business has inherently high risk, then UAE might not be the best place to run it.

Evading tax is generally not a good idea.
Perhaps you are more up-to-date then myself (and many others) regarding penalties:

Tax Evasion Penalties

Not sure what to do to avoid tax evasion penalties in the UAE? We have all the information you need, from understanding your liabilities to accurate filing.

www.ebs.ae

Criminal Liability for Tax Evasion in UAE - Habib Al Mulla and Partners

+971 4 4230000 / Email

habibalmulla.com

Abu Dhabi court jails 13 for money laundering and tax evasion

Fines totalling more than Dh100 million imposed on defendants and their companies

www.thenationalnews.com

At a glance: tax law enforcement in United Arab Emirates

A succinct guide to the enforcement mechanisms and strategies of the tax authorities in United Arab Emirates, including review of tax returns and information requests, penalties and criminal consequences.

www.lexology.com

Tax Evasion Penalties, JCAUAEAudit.com

Tax evasion is the use of illegal means resulting in the reduction of the amount of the tax due, non payment there of or a refund of a tax.

jcauaeaudit.com

Article (26)

Tax Evasion Penalties

1. Without prejudice to any more severe penalty applicable under any other law, a prison sentence and monetary penalty not exceeding five times the amount of evaded Tax or either of the two, shall be imposed on:

a. a Taxable Person who deliberately fails to settle any Payable Tax or Administrative Penalties.

b. a Taxable Person who deliberately understates the actual value of his Business or fails to consolidate his related Businesses with the intent of remaining below the required registration threshold.

c. a Person who charges and collects amounts from his clients claiming them to be Tax without being registered.

d. a Person who deliberately provides false information and data and incorrect documents to the Authority.

e. a Person who deliberately conceals or destroys documents or other material that he is required to keep and provide to the Authority.

f. a Person who deliberately steals, mis-uses or causes the destruction of documents or other materials that are in the possession of the Authority.

g. a Person who prevents or hinders the Authority’s employees from performing their duties.

h. a Person who deliberately decreases the Payable Tax through Tax Evasion or conspiring to evade Tax.

2. The imposition of a penalty under the provisions of this Law or any other Law shall not exempt any Person from the liability to pay any Payable Tax or Administrative Penalties under the provisions of this Law or any Tax Law.

3. The competent court shall impose Tax Evasion penalties against any Person who is proven to have been directly involved or instrumental in Tax Evasion pursuant to said Federal Law No. (3) of 1987.

4. Without prejudice to Clause (2) of this Article, any Person who is proven to have been directly involved or instrumental in Tax Evasion pursuant to Clause (3) of this Article shall be jointly and severally liable with the Person whom he has assisted, to pay the Payable Tax and Administrative Penalties pursuant to this Law or any other Tax Law.

 

[EliasIT]

It's really funny that a years old tax haven that was used for tax evasion for decades now talk about tax evasion

 

[manukahoney]

Personal Business Income is taxed (so professional services you provide should be declared and taxed). Like Instagram influencer making over 375k per your - it's a business activity.

Personal Non-Business Income is still tax-free (so any dividends, capital gains, inheritance, gifts, forex gains etc are exempt from any taxes). So if you parked 1mil in SPY and another 1mil in some startups - you will not pay any taxes on dividends, exits or capital gains.

Some folks here are trying to be overzealous when it comes to taxation when in reality the tax code is generally reasonable as long as you don't try to bend it very much.

P.S. Seek a professional advice.

 

[sinos]

Article (26)

Tax Evasion Penalties

1. Without prejudice to any more severe penalty applicable under any other law, a prison sentence and monetary penalty not exceeding five times the amount of evaded Tax or either of the two, shall be imposed on:

a. a Taxable Person who deliberately fails to settle any Payable Tax or Administrative Penalties.

b. a Taxable Person who deliberately understates the actual value of his Business or fails to consolidate his related Businesses with the intent of remaining below the required registration threshold.

c. a Person who charges and collects amounts from his clients claiming them to be Tax without being registered.

d. a Person who deliberately provides false information and data and incorrect documents to the Authority.

e. a Person who deliberately conceals or destroys documents or other material that he is required to keep and provide to the Authority.

f. a Person who deliberately steals, mis-uses or causes the destruction of documents or other materials that are in the possession of the Authority.

g. a Person who prevents or hinders the Authority’s employees from performing their duties.

h. a Person who deliberately decreases the Payable Tax through Tax Evasion or conspiring to evade Tax.

2. The imposition of a penalty under the provisions of this Law or any other Law shall not exempt any Person from the liability to pay any Payable Tax or Administrative Penalties under the provisions of this Law or any Tax Law.

3. The competent court shall impose Tax Evasion penalties against any Person who is proven to have been directly involved or instrumental in Tax Evasion pursuant to said Federal Law No. (3) of 1987.

4. Without prejudice to Clause (2) of this Article, any Person who is proven to have been directly involved or instrumental in Tax Evasion pursuant to Clause (3) of this Article shall be jointly and severally liable with the Person whom he has assisted, to pay the Payable Tax and Administrative Penalties pursuant to this Law or any other Tax Law.

Maybe I have a different idea, I don't see any prison sentence in the violation penalties - https://mof.gov.ae/wp-content/uploa...-the-Application-of-the-Corporate-Tax-Law.pdf

Can you please point me to a sentence in the above pdf, where it says prison time for violation? Remember Corporate Taxation is being dealt with amendments, taking into account all previous Tax laws in place, please go through the document objectively.

Personal Business Income is taxed (so professional services you provide should be declared and taxed). Like Instagram influencer making over 375k per your - it's a business activity.

Personal Non-Business Income is still tax-free (so any dividends, capital gains, inheritance, gifts, forex gains etc are exempt from any taxes). So if you parked 1mil in SPY and another 1mil in some startups - you will not pay any taxes on dividends, exits or capital gains.

Some folks here are trying to be overzealous when it comes to taxation when in reality the tax code is generally reasonable as long as you don't try to bend it very much.

P.S. Seek a professional advice.

I stand amended on my previous statement regarding personal income from services. There is a nuance to the CIT legislation -

"Businesses or Business Activities, conducted by a resident or non-resident natural person, shall be
subject to Corporate Tax only where the total Turnover derived from such Businesses or Business Activities exceeds AED 1,000,000 (one million United Arab Emirates dirhams) within a Gregorian calendar year."

So, I think, if someone is a freelancer, working as a natural person and not as a legal entity, then in that case, if the turnover doesn't exceed 1 million AED, then that person doesn't have to register for CT as CT doesn't come into the picture. My apologies to @imtaku

Source: https://mof.gov.ae/wp-content/uploads/2023/05/Cabinet-Decision-No.-49-of-2023.pdf

 

[Don]

Maybe I have a different idea, I don't see any prison sentence in the violation penalties - https://mof.gov.ae/wp-content/uploa...-the-Application-of-the-Corporate-Tax-Law.pdf

Can you please point me to a sentence in the above pdf, where it says prison time for violation? Remember Corporate Taxation is being dealt with amendments, taking into account all previous Tax laws in place, please go through the document objectively.


I stand amended on my previous statement regarding personal income from services. There is a nuance to the CIT legislation -

"Businesses or Business Activities, conducted by a resident or non-resident natural person, shall be
subject to Corporate Tax only where the total Turnover derived from such Businesses or Business Activities exceeds AED 1,000,000 (one million United Arab Emirates dirhams) within a Gregorian calendar year."

So, I think, if someone is a freelancer, working as a natural person and not as a legal entity, then in that case, if the turnover doesn't exceed 1 million AED, then that person doesn't have to register for CT as CT doesn't come into the picture. My apologies to @imtaku

Source: https://mof.gov.ae/wp-content/uploads/2023/05/Cabinet-Decision-No.-49-of-2023.pdf

Sinos, this is because you are referring to administrative penalties and simply disregarding the penal code, which exists in parallel.
It would be a paradise for criminals if you could do whatever and just pay a small fine

Administrative Penalties:
These are essentially fines imposed for failures to comply with VAT/CIT requirements. Examples include failure to register for tax when required, failure to submit a tax return or make a payment within the required period, and errors leading to incorrect refund claims.
The penalties are detailed in the UAE laws and are often financial in nature, with fixed amounts or percentages of unreported tax depending on the violation.

Criminal Penalties:
These are applied in more serious cases of tax evasion, such as deliberate falsification of records to reduce payable tax or fraud.
Penalties might include imprisonment as well as hefty fines - usually both. The nature and extent of the penalty are often determined by the severity of the offense, and cases are typically referred to the judiciary by the Federal Tax Authority (FTA).
In severe cases, other repercussions like deportation (for non-citizens) could also apply.

It's crucial to differentiate between unintentional mistakes (which might still incur administrative penalties) and willful tax evasion (which could lead to criminal penalties). In either case, the FTA is the primary body overseeing tax compliance in the UAE, and they have the power to conduct audits, impose penalties, and refer cases for criminal prosecution.

 

[Asgard0]

Hello

Here its written that personal income is still taxed unless it doesnt have a business profile -> Everything You Need to Know About the Corporate Tax in the UAE – What to Do & What to Avoid

Here and on some other pages it says that you can increase that 100 thousands threshold with paying yourself a legit salary 99% of Freezone Companies formed by DLS Dubai remain 0% Corporate Tax – Why?

& on some other pages i read that if you only sell to non-uae personens and businesses you can be fully excluded from the tax as a freezone company.

 

[JustAnotherNomad]

Here and on some other pages it says that you can increase that 100 thousands threshold with paying yourself a legit salary

Yes, the relevant part is "legit". It has to be a realistic amount. You can't make 10M in profits and pay out a 10M salary.

& on some other pages i read that if you only sell to non-uae personens and businesses you can be fully excluded from the tax as a freezone company.

That's a lie.

 

[sinos]

That's a lie.

Partly true, 3rd port businesses involving 2 different countries is 0% taxation.

 

[JustAnotherNomad]

Yes, if you do manufacturing, there isn't any tax either. But the statement as it is written above is a lie.

 

[sinos]

Yes, if you do manufacturing, there isn't any tax either. But the statement as it is written above is a lie.

No, not about manufacturing, it's more about dropshipping, buying goods from country A and selling to country B, goods not touching UAE, profit is taxed at 0%.

 

[Don]

Yes, the relevant part is "legit". It has to be a realistic amount. You can't make 10M in profits and pay out a 10M salary.



That's a lie.

I believe you meant 10M sales revenue and paying all that out as salary, otherwise in your case it would not look too bad, e.g.:

30M revenue
10M profits (33.3% of revenue) @ 9% tax
10M salary expense (33.3%) 0% tax
10M outsourced services (33.3%) to Estonian company that does not distribute profits (0% tax)

In such way out of 30M revenue, only 810k tax is paid effectively (2.7%)

 

[JustAnotherNomad]

I'm not sure how strict they will be about transfer pricing/GAAR. I guess it could work like that - but then 10M are stuck in Estonia and potentially subject to 24% tax later. Unless you find some other way to get the money out (well, maybe with your capital contribution trick).

 

[Don]

I'm not sure how strict they will be about transfer pricing/GAAR. I guess it could work like that - but then 10M are stuck in Estonia and potentially subject to 24% tax later. Unless you find some other way to get the money out (well, maybe with your capital contribution trick).

Yes, well it could be whatever else that makes a better sense. For example a typical Cyprus holding with nominees - Georgia subsidiary structure with IT license which could be effectively 0% tax structure.

For IT licence you must be an IT company and have some economic substance in Georgia (e.g. a local office with Georgian employees, Georgian bank account and phone number).

UAE and Cyprus both have 0% wht, so they are solid options for holding

 

[ironhide]

I’m thinking about going for a Small Business Relief. Can redirect payments and get revenue for FZCO under 3M AED in 2024.
However, the previous period revenue was higher. But since the first tax period will be in 2024, maybe it’s not a problem.
What do you think? Is this a valid approach?

 

[JustAnotherNomad]

If you didn't have to submti accounts for previous years, how would they even know? I would probably still ask them to be sure though.

 

[ironhide]

The bank sees the transactions. I don't know is there any cooperation between banks and tax authorities regarding this, so I have doubts.

 

[yngmind]

You would also have problems with bank accounts since they prohibit conducting business using your personal account.