yes we can always have an office anywhere, no restriction. likewise freezone could always do business with mainland but with penalties
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UAE clarification of Freezone Qualifying Income
- Thread starter joffreylol
- Start date
99% of Freezone Companies formed by DLS Dubai remain 0% Corporate Tax – Why?
From June 1, 2023, the UAE authorities have introduced a corporate income tax, for taxable individuals and companies with a tax rate of 9%. What does this mean for you?
dls-dubai.com
"Why would they need to provide a list of minimum activities that free zones can conduct worldwide when these activities can already be carried out without paying corporate tax (CT) in all free zones in Dubai? Let's not forget that these free zones are located within the Emirates."
Possibly because if funds are received from another free zone in the UAE, those companies would have already been taxed for activities that are not exempt from tax (meaning exports are taxed except qualifying activities).
The UAE is now considered a blacklisted country (even if in real there is a very limited impact on international transactions), and even though it is legitimate and interesting to protect the owners of free zones from taxation, it would be beneficial in the long run to include international transactions in this move to support the country's growth. Why export from mainland would be taxed and not those from Freezone ?
Why Marketing services owned by a mainland company, for some of them with citizens as shareholders (rich and smart people), will accept that a foreigner get any commercial advantage right 100 meters away from their office operating from Freezone ?
By adhering to these international standards, Dubai demonstrates its willingness to cooperate with the international community and play a responsible role in global financial affairs.
- This move can show the world that it is no longer acceptable to avoid high taxation simply by invoicing through free zones.
- The biggest consulting firms (PwC, Deloitte, KPMG, EY) currently maintain that free zones should be taxed as if they were mainland operations.
- Qualifying income definition :
Income derived from transactions with other Free Zone Persons, except for income derived from Excluded Activities. - Easy understanding - as previously said - all activities except excluded = important to highlight business with individuals (BtoC) - so restaurant, salon, marketing services are subject to CT.
- How are you planning to manage your de minimis requirement by limiting your clients' cash payments to no more than 5%? Do you see this target as a means to combat money laundering and make it more difficult for cash to be reinvested in the local economy? Could this measure be aimed at supporting the growth of the UAE, particularly the real estate market, rather than merely showcasing the UAE's efforts to adhere to international rules and become a major business hub?
My own point of view -
You are not taking in consideration global economy aspect and even if I would love to believe in yours for tax optimization purpose which I am also concerned - that would be a "focusing on short term profit and close your eyes on reality for a few months" and not considered where we are going" approach. People who setup in UAE are part of an economy and I think it's legitimate to explain to them that yes, UAE now is a taxation country, yes things will change, yes it has bad and good sides.
Meydan Freezone Autorithy does not seem to think so:
UAE Corporate Tax 2023 — A Complete Guide - Meydan Free Zone
The UAE has announced a new corporate tax, coming into effect on June 1st 2023. What does the UAE corporate tax mean for you?www.meydanfz.ae
Also, you haven't answered me about what will happen to offshore companies! Why can't they tax freezone on foreign income and leave it exempt for offshore
Otherwise you could just open a company, get a residence visa and work with an offshore UAE company like a Rak ICC
Don't go very far today Portugal allows you to do what you say by staying in Europe and opening a company in Delaware or Hong Kong or even an LLP in the UK
According to what you say it would be enough to open:
Company in Dubai anywhere just to get residency visa leaving it inactive
Then open an offshore RAK ICC as a holding company
Open a company in Hong Kong, Delaware or UK held by RAK ICC and administered by a trustee
0% tax company collects > RAK ICC company receives dividends > RAK ICC distributes Dividends to personal Emirati account
All without paying a euro in tax
End of story and taxation
The blog post of Meydan was written a month and half ago before the new publication of gouvernment regarding clarification of Qualifying freezone Person.
The second one is certainly written by a corporate services provider which looks like someone who watched 20 min Youtube clip on what is Corporate tax and try to rassure audience there is no tax. It is not reliable we are here to speak with expertise to get real conclusion.
VZ employed one Chartered accountant which is getting in troubles understanding SMB (Small business Relief), such as defined into law - it is clearly specified that you can ask for it if your previous exercice((s) WITH AN S)) are valid. Means by law - it could be available only in 2026 for people which can shows more than one year being covered by revenu not exceeding 3M AED.
Only statement from VZ are some videos to promote administrative management tasks such as accounting.
Do you know definition of Offshore company ? An offshore company is a company you own without being resident in the juridiction. By definition, if you are Italian resident and own a company in Belgium, this is an Offshore company.
You seems put Offshore company statut to RAKICC such as there are "special" powers. Those structures were mainly used and known because of very cheap cost of maintaining. Because of big troubles, notably with Dubai's papers, 100% of those companies which are involve in commercial operations are totally blacklisted of banking world in UAE.
Only chance to get a bank account with "offshores" nowadays - means without being resident - is to use them only to hold asset (real estate for instance).
I believe you are making a confusion about "Offshore" statut.
So to conclude, your offshore company (which you're not resident) should be taxed in the country she is managed. IF she is managed from inside UAE, means there is a employment as Director in the Company and indirectly means there is Residence Visa, and so substance. If there is substance, this company is not offshore anymore and seen as a regular Freezone now.
I might be wrong please any others voices to assist with this important topic ?
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Beside of that we have covered this in our latest blog article with Point 4. here:
99% of Freezone Companies formed by DLS Dubai remain 0% Corporate Tax – Why?
From June 1, 2023, the UAE authorities have introduced a corporate income tax, for taxable individuals and companies with a tax rate of 9%. What does this mean for you?
dls-dubai.com
Instead of just setting up a Dubai Freezone Company to get the Residence Visa and leave it inactive - this Freezone Company could be your Holding Company.
There is - beside of the fact that you are not able to open a useful local UAE Bank Account for a RAK ICC - literally no reason to setup a RAK ICC as they are falling under the Corporate Tax Filling same like every other company.
The only reason we can think of using a RAK ICC is as part of a RAK ICC Foundation structure if someone wants to avoid more transparent Public Registry which the DIFC and ADGM has in place.
Freezone Company for Visa and another Holding Company is just unnecessary costs - no client benefits from - only the Company making the Setup - Freezone Holding Company acts as Residence Visa Sponsor and can act as shareholder of Active Trading Companies overseas - potentially at a later stage when really necessary the shares of the Freezone Holding Company can be transfered to a RAK ICC Foundation with less transparency compared to DIFC / ADGM.
You are wrong. Reason 1 you mentioned above. Offshore means outside jurisidiction where the management and control resides. So Jebel Ali offshore, is onshore when you manage and control that from UAE. This is what the new tax law says in line with OECD. An offshore company controlled and managed from UK would be resident in UK and offshore not tax resident of the UAE. The company moves with the tax residence of where the ultimate management and control is exercised.
You say "
Thats what the statute says in its relevant law. 9% tax on mainland companies on your profit;. It does not say Terrotorial or exemption for "foreign clients"
You say;p
Wrong, it does not say that. Mainland companies have no exemptions - read the relevant law. It clearly states "qualifying freezone companies " in regards to "qualifying activities" it has no geographical restriction or further information on this.
@alessio was alluding to the above alrready correctly.
I do not understand why people keep imagining facts not in existence or bend the truth in such a way it is ridicilous. At least @Fred gives two options, either you agree or disagree and have scenarios in both. Unfortunately until we know the exact effect of complaince, enforcement, with cases in front of judges it will be very much just as what the law says. Freezones are irrelevant unless you do qualifying activities - which is my opinion based on all available information right now. Still you can use it for a good amount of taxfree income.
nice scenario and yes you could, but lets ignore GAAP and transferpricing and artificial structures of tax avoidance. Technically not passing many tests, but enforcement lacking for small numbers. Again also the reason EU came down hard - they cant keep the tap open , draining money to tax free zones and abuse like you mentioned above
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Instead of drafting a legislation saying that all the economic activities are liable for 9% CIT, except the following cases 1,2,3,4 etc, the UAE rule drafters made a big mess with qualifying, non-qualifying and excluded activities... Completely stupid. On another note, because of the previous 0% tax rate the clients have no international planning expertise, by far the majority (looking at the number of companies they serve not their income) of accountants have no international tax expertise, the majority of the auditors have no international tax experience, the tax authorities have no real international expertise and the government bureaucrats also have limited international tax planning expertise. What a huge mess it is - especially for tax enforcment...
I am very much afraid of committing a genuine tax mistake in the UAE - lack of the rule of law practice makes it quite dangerous to operate with any entities. That is my biggest problem
I am very much afraid of committing a genuine tax mistake in the UAE - lack of the rule of law practice makes it quite dangerous to operate with any entities. That is my biggest problem
Sure you can do that, but then you have to pay tax for that company in Portugal.
That has always been my biggest issue with the UAE. I canceled everything before June to avoid this mess. Now I can watch it from the sideline and see how things develop.
did anyone notice that excluded activity is
does this mean if you have clients that are natural persons, or they pay you from their personal account it is considered excluded activity?
so pretty much B2C can't be taxed with 0% tax?
does this mean if you have clients that are natural persons, or they pay you from their personal account it is considered excluded activity?
so pretty much B2C can't be taxed with 0% tax?
Depends on whether they meant "UAE natural persons" or "any natural persons globally".
The common sense says "UAE persons", but there is no clarity in this matter.
That seems very clear, that is why I am envious for Fred to have 90% of his clients who are not selling to non-free zone individuals
Ministerial Decisions are now public and almost completed - at least the most important ones.
That's the fundament - now the Federal Tax Authority provides further Clarifications.
Wait for it.
I understand this and I'm not a fan of it either but to be honest it's in every more or less developed country the procedure.
No matter if democratic country or modern dictatorship - the fundament is set by the relevant Minister Department or Parliament and the responsible Authority takes it from there.
According to this : https://mof.gov.ae/wp-content/uploads/2023/05/FINAL-CT-Guide-English-12.5.23.pdf
A “natural person” means an individual or individuals. As discussed above, natural persons would only besubject to Corporate Tax insofar as they conduct a Business or Business Activity in the UAE.For certain types of Business Activities, natural persons can form a sole establishment or a civil company. For Corporate Tax purposes, these entities will be disregarded and treated as the natural person or persons owning them because of their direct relationship and control over the Business and their unlimited liability for the debts and other obligations of the Business
An interesting webinar from Deloitte on corporate tax for free zones.
Can't delete my above message as the timelimit has passed so providing some more information.
An interesting webinar from Deloitte on corporate tax for free zones.
Towards the end of the presentation (around ~40mins), a question is asked if the income derived by a free zone company that provides management consulting/legal services to a non-UAE company is taxable, and their answer is most likely, yes.
This seems at odd with your blog post @Fred.
"If you are not conducting Business with the UAE Mainland or have a Banking, Insurance or Finance Business Activity which 99% of DLS Dubai Clients don’t have – you are not part of the Excluded Business Activity List and therefore 0% Corporate Tax applies."
Not saying you're right or wrong...
But I still fail to see how revenue generated by a freezone company providing for instance, management consulting or IT services to a non-UAE business would not be deemed taxable.
Can you enlighten me?
Also, if the case is that they're deemed taxable, then it seems being treated as a mainland company must be more advantageous to get small business relief.
I should add I'm grateful and assume others on here as well for the information you provide.
Can't delete my above message as the timelimit has passed so providing some more information.
An interesting webinar from Deloitte on corporate tax for free zones.
Towards the end of the presentation (around ~40mins), a question is asked if the income derived by a free zone company that provides management consulting/legal services to a non-UAE company is taxable, and their answer is most likely, yes.
This seems at odd with your blog post @Fred.
"If you are not conducting Business with the UAE Mainland or have a Banking, Insurance or Finance Business Activity which 99% of DLS Dubai Clients don’t have – you are not part of the Excluded Business Activity List and therefore 0% Corporate Tax applies."
Not saying you're right or wrong...
But I still fail to see how revenue generated by a freezone company providing for instance, management consulting or IT services to a non-UAE business would not be deemed taxable.
Can you enlighten me?
Also, if the case is that they're deemed taxable, then it seems being treated as a mainland company must be more advantageous to get small business relief.
I should add I'm grateful and assume others on here as well for the information you provide.
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Deloitte has to be very careful - they would be crazy to even hint at something, which then won't come to be. They have to stick to official documents, not hopes and rumors.
I think there is absolutely nothing official at this point to support those claims by Fred. However, I think he does have a point, in that it's possible that such income will be continue to be exempt from CIT.
I think at this point, it's best to just wait for further clarification, which will come at some point. They can't just leave things this unclear forever.
As long as there is no clarification, I would also assume that income from foreign clients will be subject to CIT.
I think there is absolutely nothing official at this point to support those claims by Fred. However, I think he does have a point, in that it's possible that such income will be continue to be exempt from CIT.
I think at this point, it's best to just wait for further clarification, which will come at some point. They can't just leave things this unclear forever.
As long as there is no clarification, I would also assume that income from foreign clients will be subject to CIT.
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