Please help! UAE Freezone + operation in PH

[OnTheFly]

Hey guys, EU friend that is going to move to UAE soon and setup a freezone company + live in UAE a few months a year minimum.
I have a particular question that no one has asked here, and need your opinion // advice.
Say i was operation a social media farm, and would like to setup an office with my equipment but office space and labor are quite expensive in Dubai (labor might not be, not too sure, but offices are super expensive, not worth it.)
What would be the optimal way of setting up an office in the Philipinnes, would i have to register a company over there ? Could i pass by a service provider in PH charging my UAE company for a "service provided" (employees) by acting as a gateway between me and the philipinnos.
I have no idea of the feasability, and tax implications etc, i don't mind having to contribute to income taxes for employees in PH etc as the whole cost of operation will surely be lower than operating all of this in UAE, but i'd like to get an idea of the implications involved, things i might struggle with etc...

Thanks a lot for your read, some parts might not make sense and i'm sorry about that, very noob regarding procedures like this, and that's why i need your help haha

 

[Sols]

The easiest method is to form a subsidiary of the UAE in the Philippines. The UAE company injects capital into the Philippine company as necessary to get things started. Then the Philippine company invoices the UAE company a reasonable amount for services provided and enough profit margin to generate a slight taxable profit in the Philippines. You pay this tax, pay the workers, and the rest goes back to the UAE parent as dividends.

While the risk is relatively low, make sure you clearly define what each company does, and keep at least one or two key people in UAE. That way there's much less of a risk that the UAE company becomes taxable and/or tax resident in the Philippines.

It's a pretty common setup. An often overlooked part is the importance of having a good COO/Head of Operations type person locally in the Philippines. There is a large and good talent pool in the Philippines, but you'd do yourself a favour having a local there ensuring work gets done.

 

[OnTheFly]

The easiest method is to form a subsidiary of the UAE in the Philippines. The UAE company injects capital into the Philippine company as necessary to get things started. Then the Philippine company invoices the UAE company a reasonable amount for services provided and enough profit margin to generate a slight taxable profit in the Philippines. You pay this tax, pay the workers, and the rest goes back to the UAE parent as dividends.

While the risk is relatively low, make sure you clearly define what each company does, and keep at least one or two key people in UAE. That way there's much less of a risk that the UAE company becomes taxable and/or tax resident in the Philippines.

It's a pretty common setup. An often overlooked part is the importance of having a good COO/Head of Operations type person locally in the Philippines. There is a large and good talent pool in the Philippines, but you'd do yourself a favour having a local there ensuring work gets done.

Thanks a lot for your speedy response!
I think the hardest part of this process is to actually find the COO // Head of Operations that will be loyal and honest when i'm not around.
Will definetely checking into subsidiaries etc, thank you.

 

[baltic7]

Thanks a lot for your speedy response!
I think the hardest part of this process is to actually find the COO // Head of Operations that will be loyal and honest when i'm not around.
Will definetely checking into subsidiaries etc, thank you.

You can find a large number of qualified people for the COO position in the Philippines by posting a job on Linkedin.

Or using the services of a headhunter (more expensive).

 

[Sols]

Agreed with @baltic7. As part of the hiring process, get and check references. It's a perfectly normal thing to do.

Recruiters can be expensive (10-30% of the hired person's annual salary), but for key roles they're often worth it if you don't have a professional network or in-house recruiter.

 

[Jerry1911]

I think the hardest part of this process is to actually find the COO // Head of Operations that will be loyal and honest when i'm not around.

Tie a bonus to KPIs.

 

[OnTheFly]

Tie a bonus to KPIs.

Yeah definetely, thanks!

 

[Jijajee]

if the UAE company was managed and controlled by a Filipino tax resident, and no one was living in UAE, will the UAE company be subject to Philippines tax?

I read somewhere that a company is tax resident in the Philippines only when incorporated in the Philippines but there is no control/management test.

Therefore the setup would be

EU clients > UAE > PH

Profits are kept in UAE not only for tax purposes but for market stability and reduced bureaucracy.

Would this be problematic? Is economic substance necessary in UAE?

 

[Sols]

if the UAE company was managed and controlled by a Filipino tax resident, and no one was living in UAE, will the UAE company be subject to Philippines tax?

There is a risk.

I read somewhere that a company is tax resident in the Philippines only when incorporated in the Philippines but there is no control/management test.

Not tax resident, but it may create a PE (Permanent Establishment) which is taxable.

 

[Jijajee]

Thanks for the insight. As I understand, PE will be taxable based on the arm’s length rule. I see why a cost plus some profit strategy is necessary to keep BIR happy. I suppose if your business grows and they want more tax then they can do whatever they want. Risk that comes with doing business with less stable governments.

Therefore, the only long term strategy is to migrate some operation in UAE. Otherwise, you are better off performing tax optimisations within the local jurisdictions involved.

 

[baltic7]

if the UAE company was managed and controlled by a Filipino tax resident, and no one was living in UAE, will the UAE company be subject to Philippines tax?

I read somewhere that a company is tax resident in the Philippines only when incorporated in the Philippines but there is no control/management test.

Therefore the setup would be

EU clients > UAE > PH

Profits are kept in UAE not only for tax purposes but for market stability and reduced bureaucracy.

Would this be problematic? Is economic substance necessary in UAE?

I think that if the clients are in the EU, and living in Dubai is not essential (you may want to live there), there are better options to set up a company where few taxes are paid and there is not too much bureaucracy. In my opinion.

In fact, in your situation I would use an LLC or a company in Estonia (although in Estonia it will be very difficult to open bank accounts without being a resident, just use EMI) to invoice clients and live in Thailand using territorial taxation. In the end, you are closer to the Philippines to control the operations of the company.

But of course, that depends on personal situations and life interests. For example, I don't like Thailand (nor Dubai).

 

[VanguardFortuna]

Hey guys, EU friend that is going to move to UAE soon and setup a freezone company + live in UAE a few months a year minimum.
I have a particular question that no one has asked here, and need your opinion // advice.
Say i was operation a social media farm, and would like to setup an office with my equipment but office space and labor are quite expensive in Dubai (labor might not be, not too sure, but offices are super expensive, not worth it.)
What would be the optimal way of setting up an office in the Philipinnes, would i have to register a company over there ? Could i pass by a service provider in PH charging my UAE company for a "service provided" (employees) by acting as a gateway between me and the philipinnos.
I have no idea of the feasability, and tax implications etc, i don't mind having to contribute to income taxes for employees in PH etc as the whole cost of operation will surely be lower than operating all of this in UAE, but i'd like to get an idea of the implications involved, things i might struggle with etc...

Thanks a lot for your read, some parts might not make sense and i'm sorry about that, very noob regarding procedures like this, and that's why i need your help haha

Actually my business is offshore staffing in the Philippines. My sales company is in Australia but we're looking to move it to Dubai so sales invoices are paid to my UAE entity and we relocate ourselves to Dubai also.

If you're looking for a transparent and easy service to work with, I can tell you all about how we operate. We can setup your teams in our offices, fully equipped, full HR and payroll management, laptops, aux monitors, online timesheeting, remote management tools etc. and we look after cultural and social events etc to keep them all happy.

We are in Cebu, so feel free to reach put and ask any questions about it all.

 

[Juleski70]

I'm late to the thread but check out "representative office" structure in the Philippines. There are filing/bureaucratic obligations but it is not subject to income tax and is not a corporate entity. It is designed for foreign companies that want to do back office/BPO operations in the Philippines. You won't face "permanent establishment" issues.