The United Arab Emirates (UAE) is among the world’s fastest-growing business destinations.
With its strategic location and strong government support, the UAE has attracted entrepreneurs from across the world by making business easy to conduct and providing state-of-the-art infrastructure.
However, the main factor underpinning the UAE’s popularity has been its policy of not taxing corporations. That policy of being a zero-tax country has changed – personal income tax remains at zero but recent changes in 2023 have witnessed the introduction of a 9% tax on some corporations.
The result of these changes means that, for many investors, major questions – if not doubts – hang over the economic future of this booming global financial hub.
But the fact is, the UAE has introduced corporate tax reforms to garner greater acceptance from the international community and avoid being blacklisted by the West. And while it may no longer be the tax haven it once was, there are still some excellent reasons to establish a company there.
It’s true that, in the main, businesses in UAE now face a standard 9% tax rate based on their taxable income that exceeds AED375,000, or approximately US$100,000. Still, 9% is one of the lowest corporate tax rates available and it’s possible, despite the tax changes, to achieve a zero-tax rate by using a UAE free-zone company and meeting certain conditions.
When setting up a free-zone company, if you qualify as a free-zone person and have qualifying income from certain types of business activity or transactions, it can still be subject to 0% corporate tax.
When establishing a free-zone company, 100% foreign ownership means that the owner is not required to live in the UAE, though usually a general manager for the company must be a resident of the UAE.
While the criteria used to determine qualifying income are relatively complex and the rules often confusing, navigating tax-efficient company formation in the UAE is still possible. Ideally, no one should go through this process without help.
At Nomad Capitalist, our team of professionals works worldwide to provide you with unparalleled expertise. Find out more here.
UAE Country Overview
The United Arab Emirates consists of seven emirates, or regions, with a population of just over 9.5 million. Abu Dhabi is the largest emirate and home to the booming oil industry that fuels the majority of the region’s wealth. However, with its flashy Vegas-like atmosphere, shimmering skyscrapers, and bling culture, Dubai is very much the jewel in the UAE’s crown.
The country has one of the world’s largest expat communities, with nationals from more than 200 countries living in the United Arab Emirates, and it’s a genuinely multicultural country. While there remains a reverence for traditional Arab and Islamic values, the country’s increasingly liberal outlook is progressively opening the UAE up to Western culture and greater tolerance.
Still dependent on petroleum, according to the Dubai Chamber of Digital Economy, the UAE’s digital economy is predicted to hit US$140bn by 2031 and increase the sector’s contribution to the country’s GDP to more than 20%.
Starting a Company in the UAE
The United Arab Emirates Government is committed to promoting business activity in the UAE using innovative means. One example is its pioneering Bashr service for setting up a company online.
This integrated eService allows investors to establish a company in the UAE within 15 minutes through a unified online platform. This platform links with federal and local government entities to supply business licences.
The Abu Dhabi Business Centre provides an instant licence to start a UAE company online without having to travel to the UAE to pick it up in person.
Dubai Government entities, such as Dubai Economy and others, have come together to launch the Dubai Virtual Commercial City Program for global entrepreneurs and investors. This program allows investors to open a virtual company in the Emirates even if they do not reside in the UAE.
Previously, the UAE required that at least 51% of the shareholders in a company reside within the country. However, this is no longer the case under the Amending Commercial Companies Law. Today, you can incorporate an LLC in the United Arab Emirates with 100% of the shareholders residing abroad.
It’s important to remember that by opening a business in the UAE, you’re opening the door to acquiring a UAE residence visa. But navigating the new tax rules to achieve zero-tax status or gain a residence permit can be challenging. By becoming a Nomad Capitalist client, we will analyse which tax system is right for you and your new business. We’ll also handle all the paperwork and simplify the process of achieving zero-tax status and a residence permit.
Requirements for Opening a Company in the UAE
The UAE is divided into three different economic zones:
- UAE Mainland
- UAE Free Zone
- Offshore.
Each jurisdiction caters to the requirements of different industry sectors. Although there are differences in terms of company formation procedure, they all broadly follow the template established for mainland companies such as the steps outlined below.
Identify a Business Activity
Your business activity is the foundation for selecting the legal form and type of licence, whether commercial, industrial, professional or so on. There are six types of licences:
- Industrial
- Commercial
- Professional
- Tourist
- Agricultural
- Occupational.
A company can have more than one business activity in the UAE, with more than 2,000 to choose from.
Choose the Right Legal Structure
It’s essential to understand that the legal structure chosen should align with your business activities. Take your pick from one of the following company types that can be opened on the UAE mainland, in a free zone, or offshore:
- General Partnership
- Limited Partnership
- Limited Liability Company (LLC)
- Public Joint Stock Company (PJSC)
- Private Joint Stock Company (PRJC)
- Civil Company
- Local Company Branch
- GCC Company Branch
- Foreign Company Branch
- Free-zone Company Branch
- Sole Establishment
- Holding Company.
Select the Trading Name of Your Business
A company’s title must conform to the UAE’s strict naming convention or the relevant economic department may not approve it. The trade name must:
- Be followed by the acronym of the legal form of the company, where appropriate, such as LLC, EST, or PJSC
- Not contravene the UAE’s public morals or order
- Be consistent with the required type of activity and the legal status of the company or business entity
- Exclude names of any religion, governing authority, or names or logos of any external bodies
- Not have been previously registered.
The local Department of Economic Development registers the trade name, while the Ministry of Economy registers the trademark.
Solicit Initial Approval from Government Authorities
Initial approval doesn’t automatically mean final approval. Rather, it means you’re on track to establishing your business in the UAE. You can, however, interpret an initial approval as the UAE Government – via the Department of Economic Development or respective Free Zone authority – expressing its willingness for your company to be established there.
This also permits the investor to move to the next stage of setting up a business.
Complete a Memorandum of Association or Local Service Agent Agreement
You will need to complete and sign a memorandum of association (MoA) or a local service agent agreement (LSA)for the following company formations:
- Limited Partnership
- Limited Liability Company
- Public Joint Stock Company
- Private Joint Stock Company.
Only UAE-based law firms, courts, and notary public are authorised to prepare and attest to these documents.
Determine Your Business Location
All UAE companies must conduct their operations from a physical address. These premises must meet requirements defined by the particular emirate’s Department of Economic Development, as well as the land planning regulations of the local municipalities.
If you don’t own your office space and warehouse, you will need to provide proof of the rental agreement. Certain emirates require these agreements to be notarised.
Attain Additional Government Approvals
In certain situations, additional approval from other government entities for specific business activities is required.
For example, the Ministry of the Interior issues additional approvals for activities related to general transport, such as driving schools, fire equipment, alarm and safety systems, second-hand car dealers, used auto parts and car rental.
The Ministry of Justice covers legal activities, while the local municipal department looks after architectural and engineering matters.
The Executive Council is responsible for travel and tourism, including car clubs, charter air transport and foreign company branches, while the Ministry of Economy is charged with monitoring insurance activities.
Then there’s the Telecommunications and Digital Government Regulatory Authority, which oversees these activities and the Local Municipal Department which handles architectural and engineering affairs.
Collect the Business Licence
Foreign investors can now collect business licences from the relevant Department of Economic Development service centres or by securing access to an online copy.
Following that, the following documents need to be submitted:
- Initial approval receipt and previously submitted documents
- Copy of the lease contract attested by Dubai’s Real Estate Regulatory Agency (RERA)
- Memorandum of association or local service agent agreement
- Further official approvals.
You need to pay for your trade licence within 30 days of receiving the demand. Otherwise, your application will be void.
In terms of the cost of company set-up in the UAE, you should budget between AED20,000 and 30,000 (Emirati Dirhams or around US$5,450–8,200). The cost increases in proportion to your requirements. For example, a foreign trade name or additional approval from a governing entity can raise the price.
Opening a Business in the UAE
Although the UAE’s low corporate tax rate is still appealing, the UAE’s tax-free status is slowly diminishing, first with the introduction of a 5% value-added tax and now with the 9% tax for some corporations.
When the UAE first introduced a 9% corporate tax, it stated there was no need for concern as the new charge would only apply to onshore companies doing business locally and that free-zone companies would largely pay 0%. While the UAE advised that there would be some restrictions, it said the process of qualifying for zero tax would be straightforward.
Now that the rules have been clarified, we know that a complex set of criteria has been applied to free-zone companies, and some are subject to the 9% tax rate.
Opening a Business in the UAE: FAQs
It depends. Businesses in the UAE now face a standard 9% tax rate based on their taxable income that exceeds AED375,000 (approximately US$100,000). However, a UAE free-zone company can still achieve a tax rate of zero by meeting certain conditions.
Yes. Many foreigners choose to start businesses in Dubai and expats make up over 80% of the population. In fact, Dubai actively encourages expat investors and business owners from overseas to set up in the city.
Previously, the UAE required that at least 51% of the shareholders in a company reside within the country. However, this is no longer the case and you can incorporate an LLC there with 100% of the shareholders residing abroad. However, you are required to have a registered office in the UAE.
The Department of Economic Development offers six types of trade licences: industrial, commercial, crafts, tourism, agricultural and professional.
Budget for between AED20,000 and 30,000 (around US$5,450–8,200). The cost of UAE company formation increases in direct proportion to your requirements. So, a foreign trade name or additional approval from a governing entity can increase the price.
Starting a business in Dubai is relatively straightforward. The city is one of the world’s top startup locations. Its business-friendly culture and attitude to innovation are the driving forces behind Dubai’s success in attracting entrepreneurs.
Why Settle for Less?
Even though it’s still possible to pay zero corporate tax in the UAE, things are definitely becoming more complicated with the result that Dubai may not be for everyone.
Unless you meet some very specific criteria in establishing a free-zone company, have qualifying income derived from clients within the UAE and maintain adequate substance there, you are going to pay tax.
You really need to have boots on the ground to make the UAE work for low taxes.
That’s why our view at Nomad Capitalist is that UAE free-zone companies are primarily designed for people who live there and have residence there. The reality is that if your fundamental goal is reducing corporate tax, you can pay less than 9% elsewhere.
So, the first question is, do you want to live in the UAE?
If the answer is no, you can go elsewhere and use multi-part company structures to minimise corporate tax. You can become a resident of Italy with its special lump-sum tax regime, find favourable corporate tax rates in places like Cyprus, Malta, Bulgaria or even Ireland and enjoy the travel and lifestyle benefits of Europe. With planning, you’ll pay as little as you would in the UAE.
We’ve nothing against Dubai, but there are many other choices to go where you’re treated best and we wouldn’t be doing our job if we didn’t advise clients of all options available to them.
It’s about getting out from under your country’s tax system efficiently and effectively, securing a second passport and choosing to move your life and business to a low or no-tax jurisdiction.
That strategy doesn’t have to involve just one place. If you want to legally reduce your taxes by going offshore, there are three key issues to consider – where you’re a citizen, where you have residence, and where you have tax residence. The solution to those three issues can be in different places – with a holistic plan designed to meet your specific personal goals there’s no limit to what you can achieve.
At Nomad Capitalist, we have a worldwide network of lawyers, estate agents, accountants and tax and company formation specialists. All that expertise and real-world experience come together when we create holistic, bespoke action plans for our clients. Discover how we do things here.
