UAE + LLC

[Evi]

Since the introduction of the corporate tax in UAE and CFC rules, how are US LLCs treated in the UAE? As transparent or opaque entities? As I believe it will no longer be tax-free.
If you know the position of UAE on this topic, please share. As I want to know how it will be taxed from now on.

 

[Sols]

Not confirmed yet but based on the FAQ provided by the MOF, it seems likely that a US LLC is considered an incorporated partnership and 9% CIT would apply.

https://mof.gov.ae/corporate-tax-faq/

 

[Evi]

For multi-member LLC definitely an option. However partnership requires at least 2 people and that would not be an option for a single-member LLCs. This is why I am wondering how it will be taxed.

 

[Sols]

A single-member LLC is probably a corporation, so tax would apply.

Time will tell what determination UAE makes. Based on the trend so far, it seems unlikely that they would carve out such an easily exploitable loophole for US LLCs.

 

[Don]

A single-member LLC is probably a corporation, so tax would apply.

Time will tell what determination UAE makes. Based on the trend so far, it seems unlikely that they would carve out such an easily exploitable loophole for US LLCs.

A flow-through entity will likely be treated similar to an unincorporated partnership - Either considered a taxable person or each partner will be treated separately as subject to CIT.

Unincorporated Partnership will not be considered a taxable person in its own right provided it is not a Juridical Person (corporate entity).

Where a Unincorporated Partnership elects to be treated as a Taxable Person in its own right, its decision is irrevocable once approved, and any change in the partnership composition must be notified to the Federal Tax Authority within 20 business days.

A Foreign Partnership that is treated as an Unincorporated Partnership must submit an annual declaration confirming that it is not taxed under foreign jurisdiction laws, and each partner is taxed individually based on their share of income.

 

[Cloudbanck]

A single-member LLC is probably a corporation, so tax would apply.

Time will tell what determination UAE makes. Based on the trend so far, it seems unlikely that they would carve out such an easily exploitable loophole for US LLCs.

It is not a loophole, if treated as unincorporated (which I think makes sense, since that s what they are), the owner resident in the UAE must still register and pay tax if the turnover is above 1M AED.

 

[Sols]

It is not a loophole, if treated as unincorporated (which I think makes sense, since that s what they are), the owner resident in the UAE must still register and pay tax if the turnover is above 1M AED.

A flow-through entity will likely be treated similar to an unincorporated partnership - Either considered a taxable person or each partner will be treated separately as subject to CIT.

If we look at the FAQ:

138. What is an Unincorporated Partnership?
An Unincorporated Partnership is a relationship established by contract between two Persons or more, such as a partnership or trust or any other similar association of Persons, in accordance with the applicable legislation in the UAE.

On the basis of needing two persons, it seems that single-member LLC can't be a partnership under UAE law.

I don't see any other provisions in the FAQ that would indicate an LLC (single member or not) that would make it considered pass-through. Based on the very loose guidance available and general lack of clarity, it's hard to say for sure. Time will tell.

 

[Cloudbanck]

Based on the very loose guidance available and general lack of clarity, it's hard to say for sure. Time will tell.

Agreed.

Just speculating, and extrapolating from the FAQ for unincorporated partnerships, a single member US LLC can be said to be a foreign unincorporated non-partnership. Would make sense if the single member is treated like one of the partners in a foreign unincorporated partnership, but we dont know for sure.

 

[lacomaco]

A flow-through entity will likely be treated similar to an unincorporated partnership - Either considered a taxable person or each partner will be treated separately as subject to CIT.

Unincorporated Partnership will not be considered a taxable person in its own right provided it is not a Juridical Person (corporate entity).

Where a Unincorporated Partnership elects to be treated as a Taxable Person in its own right, its decision is irrevocable once approved, and any change in the partnership composition must be notified to the Federal Tax Authority within 20 business days.

A Foreign Partnership that is treated as an Unincorporated Partnership must submit an annual declaration confirming that it is not taxed under foreign jurisdiction laws, and each partner is taxed individually based on their share of income.

May I ask where did you get this information? Was it published, common sense opinion or just guessing?

 

[Don]

May I ask where did you get this information? Was it published, common sense opinion or just guessing?

Checked from the official source (regarding partnerships).

Single member US LLC being treated like partnership is my assumption only, which might be wrong, but regardless I believe that one way or another it will fit into the framework of UAE CT law.

 

[lacomaco]

Checked from the official source (regarding partnerships).

Single member US LLC being treated like partnership is my assumption only, which might be wrong, but regardless I believe that one way or another it will fit into the framework of UAE CT law.

Official sourse means the Ministry of Finance FAQ, right? I do not remember about such a specific LLC related answer

 

[Don]

Official sourse means the Ministry of Finance FAQ, right? I do not remember about such a specific LLC related answer

Yes, although I believe its more complex than this.

If the LLC is engaged in a business that is considered to be "taxable" in the UAE, you should determine whether the LLC itself is subject to tax.
Consider if the entity has a permanent establishment in UAE, if it exceeds the profit threshold, etc.

United Arab Emirates - Corporate - Corporate residence

Detailed description of corporate residence rules in United Arab Emirates

taxsummaries.pwc.com

Individuals will not be subject to corporate tax. As a result, any income from employment, real estate, investments in shares, and other personal income unrelated to a trade or business in the UAE will be exempt from corporate tax.

 

[lacomaco]

Yes, although I believe its more complex than this.

If the LLC is engaged in a business that is considered to be "taxable" in the UAE, you should determine whether the LLC itself is subject to tax.
Consider if the entity has a permanent establishment in UAE, if it exceeds the profit threshold, etc.

United Arab Emirates - Corporate - Corporate residence

Detailed description of corporate residence rules in United Arab Emirates

taxsummaries.pwc.com

Individuals will not be subject to corporate tax. As a result, any income from employment, real estate, investments in shares, and other personal income unrelated to a trade or business in the UAE will be exempt from corporate tax.

I am not sure I agree with you. Like many other countries The UAE does not have flow-through entities in its corporate law, so they should treat an LLC a corporate entity, irrespective about the number of owners or place of incorporation

 

[offshore8]

is there any update How UAE will tax single member US LLC?

 

[lacomaco]

is there any update How UAE will tax single member US LLC?

Of course no

 

[sinos]

is there any update How UAE will tax single member US LLC?

If transactions are related to qualifying activity then 0% tax, new updates