UAE announces list of entities exempted from corporate tax

[troubled soul]

UAE announces list of entities exempted from corporate tax

The UAE’s Ministry of Finance on Monday announced exemptions for entities and non-resident persons from registration for corporate tax, which will come int..

www.khaleejtimes.com

 

[andrew28fl]

UAE announces list of entities exempted from corporate tax

The UAE’s Ministry of Finance on Monday announced exemptions for entities and non-resident persons from registration for corporate tax, which will come int..

www.khaleejtimes.com

Thanks for sharing.

"Any company that is non-resident and does not have a permanent establishment in the UAE will not be required to register or pay UAE corporate tax."

If I live in Dubai for over 183 days, and operate a US LLC, do I have to register? I won't have any offices or employees in the UAE. Maybe @Fred can comment.

 

[troubled soul]

Here is the official statement with all minor details ...

https://mof.gov.ae/ministry-of-finance-issues-decision-on-exception-from-registration-for-corporate-tax-purposes/

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

Some expert can simplify this ....I read all things twice but....My English and Financial understanding is not so good .......
Is it right to say that "Freezone company with no local income Exception from Registration" ?
Is it correct ?

Thanks

 

[algotrader]

Here is the official statement with all minor details ...

https://mof.gov.ae/ministry-of-finance-issues-decision-on-exception-from-registration-for-corporate-tax-purposes/

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

Some expert can simplify this ....I read all things twice but....My English and Financial understanding is not so good .......
Is it right to say that "Freezone company with no local income Exception from Registration" ?
Is it correct ?

Thanks

It doesn't give details as to which income qualifies for a freezone exemption:

Article 18 – Qualifying Free Zone Person 1. A Qualifying Free Zone Person is a Free Zone Person that meets all of the following conditions: a) Maintains adequate substance in the State. b) Derives Qualifying Income as specified in a decision issued by the Cabinet at the suggestion of the Minister. c) Has not elected to be subject to Corporate Tax under Article 19 of this Decree-Law. d) Complies with Articles 34 and 55 of this Decree-Law. e) Meets any other conditions as may be prescribed by the Minister. 2. A Qualifying Free Zone Person that fails to meet any of the conditions under Clause 1 of this Article at any particular time during a Tax Period shall cease to be a Qualifying Free Zone Person from the beginning of that Tax Period. 3. Notwithstanding Clause 2 of this Article, the Minister may prescribe the conditions or circumstances under which a Person may continue to be a Qualifying Free Zone Person, or cease to be a Qualifying Free Zone Person from a different date. 4. The application of paragraph (a) of Clause 2 of Article 3 of this Decree-Law to a Qualifying Federal Decree-Law No. 47 of 2022 - Unofficial translation 23 Free Zone Person shall apply for the remainder of the tax incentive period stipulated in the applicable legislation of the Free Zone in which the Qualifying Free Zone Person is registered, which period may be extended in accordance with any conditions as may be determined in a decision issued by the Cabinet at the suggestion of the Minister, but any one period shall not exceed (50) fifty years.

We have to wait for the "cabinet decision"

 

[TheCryptoAnt]

If I live in Dubai for over 183 days, and operate a US LLC, do I have to register? I won't have any offices or employees in the UAE. Maybe @Fred can comment.

Based on what I've been able to gather, US LLC that have not applied for S/C corp status will be considered tax transparent so you good.

 

[Fred]

So they clarified now that Offshore Companies remain Corporate Tax exempt and not like guys speculated here months ago to have EU high tax country like CFC rules etc.

I'm surprised about everyone who is actually surprised about such an outcome.

Next Freezone Companies without local UAE Mainland income remain Corporate Tax Exempt - wait for it.

 

[Marzio]

Based on what I've been able to gather, US LLC that have not applied for S/C corp status will be considered tax transparent so you good

Managing a US LLC from UAE will not trigger PE?

 

[TheCryptoAnt]

Managing a US LLC from UAE will not trigger PE?

So far its a regular LLC and hasnt filled for S/C corp status, yes. They will consider it as the tax transparent LLC that it is.
So personal taxes will apply and those remain at 0

 

[algotrader]

Managing a US LLC from UAE will not trigger PE?

I had the same thought. The news article says:

“Any company that is non-resident and does not have a permanent establishment in the UAE will not be required to register or pay UAE corporate tax"

They explicitly mention that the offshore company shouldn't have a PE in UAE. The devil is in the details.

 

[Marzio]

They will consider it as the tax transparent LLC that it is.

Ok so they are just ignoring the fact that you are operating your US LLC from UAE

 

[algotrader]

Chapter 4 - Article 11 of the federal decree actually provides a definition of taxable person:

3. A Resident Person is any of the following Persons: a) A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of the State, including a Free Zone Person. b) A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the State. c) A natural person who conducts a Business or Business Activity in the State. d) Any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.

Article 14 provides more detail about PE:

A Non-Resident Person has a Permanent Establishment in the State in any of the following instances: a) Where it has a fixed or permanent place in the State through which the Business of the Non-Resident Person, or any part thereof, is conducted. b) Where a Person has and habitually exercises an authority to conduct a Business or Business Activity in the State on behalf of the Non-Resident Person.

My interpretation of the law is that natural persons conducting business from UAE or effectively controlling a foreign legal entity from UAE are considered as taxable persons as well (i don't see any exemption for US LLC).

Now what matters in the end is the taxable base which is specified in article 12:

Article 12 – Corporate Tax Base 1. A Resident Person, which is a juridical person, is subject to Corporate Tax on its Taxable Income derived from the State or from outside the State, in accordance with the provisions of this Decree-Law. 2. The Taxable Income of a Resident Person, which is a natural person, is the income derived from the State or from outside the State insofar as it relates to the Business or Business Activity conducted by the natural person in the State as set out in Clause 6 of Article 11 of this Decree-Law. 3. A Non-Resident Person is subject to Corporate Tax on the following: a) The Taxable Income that is attributable to the Permanent Establishment of the Non-Resident Person in the State. b) State Sourced Income that is not attributable to a Permanent Establishment of the Non-Resident Person in the State. c) The Taxable Income that is attributable to the nexus of the Non-Resident Person in the State as determined in a decision issued by the Cabinet pursuant to paragraph (c) of Clause 4 of Article 11 of this Decree-Law.

My interpretation of this article is that even foreign sourced income will be considered taxable if it relates to business activity conducted in UAE and further defined by another decree,

The Cabinet shall, upon a suggestion of the Minister and in coordination with the relevant competent authorities, issue a decision specifying the categories of Business or Business Activity conducted by a resident or non-resident natural person that are subject to Federal Decree-Law No. 47 of 2022 - Unofficial translation 15 Corporate Tax under this Decree-Law.

 

[Marzio]

I think your interpretation is spot on but i also heard countless times @Fred saying that things on the ground in UAE are veeery lax so MAYBE UAE put together that law to calm down EU technocrats while in reality they don't give afuck about you managing your LLC from Dubai.

 

[TheCryptoAnt]

Ok so they are just ignoring the fact that you are operating your US LLC from UAE

Not ignoring it per se. They recognize the LLC as tax transparent and as a result they apply personal taxes to you.
Different story is if the LLC is a real corp, and as a result not tax transparent.

UAE government can lack in a bunch of things, but they are not retarded. They understand why most people live there, and based on that they create rules to keep all parties happy; all parties being residents and OECD.

Tons of countries consider US LLCs as tax transparent too, Spain for example does and its nowhere near a low tax jurisdiction.


EDIT to add: A US LLC is basically just you with a front name. It's not a real corporation unless you apply for S/C corp status. It only serves the purpose of reducing liability, but for tax purposes it's just you.

 

[Jerry1911]

I think your interpretation is spot on but i also heard countless times @Fred saying that things on the ground in UAE are veeery lax so MAYBE UAE put together that law to calm down EU technocrats while in reality they don't give afuck about you managing your LLC from Dubai.

Kind of like that 33% corporate tax in Nevis

 

[A1988]

Not ignoring it per se. They recognize the LLC as tax transparent and as a result they apply personal taxes to you.
Different story is if the LLC is a real corp, and as a result not tax transparent.

UAE government can lack in a bunch of things, but they are not retarded. They understand why most people live there, and based on that they create rules to keep all parties happy; all parties being residents and OECD.

Tons of countries consider US LLCs as tax transparent too, Spain for example does and its nowhere near a low tax jurisdiction.


EDIT to add: A US LLC is basically just you with a front name. It's not a real corporation unless you apply for S/C corp status. It only serves the purpose of reducing liability, but for tax purposes it's just you.

You are right, with PE rule in place and individual and corporation considered as taxable person it is risky, plus 3 mil revenue is peanuts, I as an individual will pay tax on personal income of 3mil aed or above, there are anti abuse rules too.

If the government of uae or fta opens an investigation against you then goodluck, i would not take any advise where someone says the authorities will turn a blind eye but the law says something else. As in my personal situation since there are 6 figures plus involved / expected, I am moving to a jurisdiction which has reasonable taxation for personal and corporate. Now that doesnt mean dubai is bad, im sure it suits a lot of people and their current situation.

 

[Offshore13]

Ok, I think I did not get it, so ''Freezone Companies without local UAE Mainland income'' does have to register corporate TAX?
I had some bad experiences with UAE VAT and don't want to reproduce this as someone deciding no you are not eligible and now we fine you 100K. Wouldnt it be best to register and then wait for the outcome, like this its safe?

 

[troubled soul]

Number of people are running business from UAE and some are very complex structure businesses ....I do not think that UAE Government have so much resource to going after everyone....Resident company is different topics...but Non resident company are many and very hard to going after each of them......IMHO taxation of Non residence LLC will be out of the question....Most people are over thing about this

 

[Offshore13]

Number of people are running business from UAE and some are very complex structure businesses ....I do not think that UAE Government have so much resource to going after everyone....Resident company is different topics...but Non resident company are many and very hard to going after each of them......IMHO taxation of Non residence LLC will be out of the question....Most people are over thing about this

I am UAE resident but in and out of the country with a Freezone company and no official employees in UAE with all income coming from outside of UAE, any direction or idea in that case. Trust me I have been talking with quite a few accountants and even with the freezone authorities themselves and seems that everyone is saying something else.

 

[JustAnotherNomad]

I am UAE resident but in and out of the country with a Freezone company and no official employees in UAE with all income coming from outside of UAE, any direction or idea in that case.

I would be very confident that such a setup will remain tax free. But I could imagine that an audit or annual report will be required in the future. That's just my guess though, I have no secret information and hope to be proven wrong.

A US LLC is basically just you with a front name. It's not a real corporation unless you apply for S/C corp status. It only serves the purpose of reducing liability, but for tax purposes it's just you.

Some countries take a different approach to that (hybrid mismatch). That can be good or bad.

What I find a bit troubling is that the UAE rules explicitly state that you may be subject to corporate (!) tax as "c) A natural person who conducts a Business or Business Activity in the State".
So even if they do consider the US LLC as transparent (personal income), it could still be subject to corporate tax.

What's worse, even if you're exempt or you stay below the thresholds (they just announced very high exemptions for small businesses, like $800k in revenu per year) - you may still have to register.
So how do you know if you should register or not? How would you even register your US LLC? Would you have to register a branch in a freezone? Is it enough to just tell them "Hey, I work from home for my tax-transparent US LLC"?
I guess nobody knows until it might be too late - and then they could change the rules again a day later, meaning you still wouldn't know how they are interpreted in practice.

I trust that they won't start taxing the Russian billionaire living in Dubai off the dividends from his factory in Russia.
I'm also quite confident that they won't start coming after free zone companies doing only business with clients abroad - otherwise they might as well just close all the free zones.
But foreign companies like US LLCs, managed by UAE residents? I feel there's a lot of uncertainty here. I guess it will also depend on how much time you spend in the UAE, if you have UAE clients (and if so, what about free zone vs. mainland?) etc.
Most likely nothing will happen for at least the next couple years in any case though, they will be busy enough implementing it for large companies, stores, restaurants etc.

 

[Martin Everson]

Has anyone actually sort local legal opinion on their setup? Or is everyone making an educated guess based on the various publications? It might be worthwhile doing so to have the legal opinion on paper in case a challenge to ones assumption is made by the tax man.