What makes the UAE so attractive for company incorporation?

The United Arab Emirates has earned the name of being exceptionally tax-friendly, and not without a reason. Most other countries which offer similar tax effectiveness – 0% or other effective tax rate – also have significant disadvantages.

For example, Hong Kong (LLC), the Netherlands (closed type CV) and the United States (LLC, disregarded entity for tax purposes) offer entities which do not pay corporate income tax. However, such entities are considered as non-resident for tax purposes. In practice, it means that they do not submit tax returns, they cannot obtain a tax residency certificate, and treaties for the avoidance of double taxation do not apply to them. Eventually, the countries where managers of these companies reside might start applying anti-tax avoidance rules, such as controlled foreign corporation rule (CFC), or the rule of permanent establishment (PE).

More zero-tax entities might be found in classic offshore jurisdictions, such as Seychelles, Belize, Panama or British Virgin Islands, however, these countries, unlike the UAE, are blacklisted by the European Union and do not possess a network of tax treaties. Companies in various exotic islands are oftentimes claimed to not have economic substance; the United Arab Emirates, which has developed a magnificent infrastructure and became one of the largest business hubs in the world, do not have this issue. Last but not least, opening a bank account for a company incorporated in one of these target jurisdictions is much more difficult and expensive.

Since, to most companies, the UAE corporate income tax does not apply, they are not required to submit annual tax returns. The UAE also does not apply withholding taxes. It means that a company in the UAE might distribute dividends, pay interest or royalties, and these payments are not subject to any tax deductions, even though specific treaties for the avoidance of double taxation allow the UAE to apply them. The benefits are even greater if the shareholder of the UAE company is an individual who is a non-domiciled tax resident in a country which does not apply personal income tax for dividends (like Cyprus or Malta).

These perks make the United Arab Emirates very popular in the international business community. If you would like to know more about becoming a UAE tax resident or incorporating a UAE company , contact us and book a meeting with one of our lawyers to discuss the specifics of your individual case.

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