When you’re looking to set up a business – anywhere in the world – the tax environment in your chosen location has a huge bearing on your decision. And it’s a major reason why so many entrepreneurs and business owners from around the world choose to set up their business in the UAE every year. In Dubai alone 21,146 new business licenses were issued in 2016. Based on the first three quarters’ figures (with Q4 not yet published) it looks as though the 2017 total will easily break the 20,000 mark again.
In the past, the UAE has been held up as the land of zero tax – a place to make it big in business and keep hold of all your profits. But does ‘tax free’ really tell the full story? And if so, what does that mean for the people and businesses operating in the Emirates? Aside from higher profits, what are key benefits to doing business in a land that proudly levies zero corporate and personal tax?
The tax picture in the UAE
It’s well known that the tax rate on both personal and corporate income in the UAE is zero. There are exceptions, but the vast majority of businesses in the Emirates really do pay zero tax on all earnings. The only businesses that usually pay tax – on a sliding scale – are branches of foreign banks and oil, gas and petrochemical companies.
But that’s not to say doing business in the UAE is entirely tax free. If you wish to import goods into the country, you’ll be expected to pay customs duty, calculated on cost, insurance and freight (CIF) at a rate of 5%. Again, there are a couple of exceptions to this rule: alcohol, tobacco products and energy drinks are subject to excise at a rate of 100% and carbonated drinks at 50%. These taxes only apply to mainland businesses, however. Set up in one of the UAE’s many free zones and you could benefit from 100% import and export tax exemption, along with a host of other benefits.
Set up in one of the UAE’s many free zones and you could benefit from 100% import and export tax exemption, along with a host of other benefits.
Renting a business premises in the UAE also incurs tax – usually a percentage of the annual rental value. Dubai, for example, imposes a tax of 5% of the annual rental value of the property. The most notable tax in the UAE however is VAT. Introduced in January 2018, VAT is charged at a flat rate of 5% on most business products and services.
And though they’re not strictly taxes, there are a couple of other common charges you’ll likely face when doing business in the UAE. Registering for e-channel services – the government’s new online portal for applying for visas and permits – costs around AED 7,500 (approx USD 2,050) with a refundable deposit component of AED 5,000 (approx USD 1,350). There is also a cost to applying for and renewing your business licence, though again these are low, starting with a down payment of around AED 5,000.
In the light of these levies and charges, it’s perhaps fairer to describe the UAE as a land of incredibly low tax, rather than strictly tax free. Nevertheless the country’s tax regime remains highly competitive, making it one of the most business-friendly environments in the world – maybe even the most.
How do other business centres compare?
Clearly the UAE’s tax structure is a strong incentive for entrepreneurs looking to set up here, but to get a detailed insight let’s see exactly how it compares with some of the world’s other leading business hubs.
London: The UK’s corporate tax rate is one of the lowest in Europe. However, at 19% (in the current tax year) it’s still significantly higher than the UAE. This is also the case with personal tax which is levied at a rate of 20% on earnings between GBP 11,501 and GBP 45,000 (around USD 63,000); 40% on earnings between GBP 45,001 and GBP 150,000; and 45% on earnings over GBP 150,000. UK businesses are also required to pay business rates based on the ‘rateable value’ of their premises, which can run into thousands of pounds per year. VAT is also charged at a flat rate of 20% on most goods and services.
New York: US corporate tax rates now stand at 21% after Congress passed the Tax Cuts and Jobs Act in January 2018. Previously the rate was 40%, one of the highest corporate tax rates in the world. The country’s personal tax rates for an individual filer in 2018 depend on income: 12% for incomes between USD 9,526 and 38,700; meanwhile it’s 22% for incomes between USD 38,701 and USD 82,500. Further up the scale, you’re looking at 32% for incomes between USD 157,501 to USD 200,000; 35% on USD 200,001 to USD 500,000 and 37% for incomes over that threshold. In addition to these taxes, New York’s businesses are required to pay state and city sales taxes on most goods and services, which alongside a small transportation tax can take the total local tax burden up to 8.875%.
In addition to these taxes, New York’s businesses are required to pay state and city sales taxes on most goods and services.
Singapore: While Singapore’s corporate tax rate currently sits at a relatively competitive 17%, there have long been murmurs in the business community that this will not be the case for much longer. Last year’s budget announcement already saw a change to the city-state’s Corporate Income Tax Rebate – from 2018, businesses will only receive a 20% corporate tax rebate, capped at SGD 10,000 (around USD 7,500). This is quite a big decrease from the 50% rebate, capped at SGD 20,000, that was afforded to businesses in 2016. And in 2017 there’s also been a change in personal income tax bands, equating to a 2% tax rate increase on earnings of over SGD 320,000 (around USD 240,000) – putting the top tax rate at 22%.
Sydney: Australia’s corporate tax rate of 30% (28.5% on turnover under AUD 2m) puts it in the top 30 in the world. And personal rates aren’t much more competitive with top rate earners paying 45c in the dollar on incomes above AUD 180,000 (around USD 140,000). On top of this, Sydney’s businesses must pay Goods and Services Tax (GST) of 10% on most goods and services and a payroll tax on any money paid to employees – this is charged at 5.45% if total wages exceed a threshold of AUD 750,000.
Are there changes on the way?
What really sets the UAE apart from the cities above, on top of its much lower rates, is that there are no plans to change the model any time soon. Recent comments from Dubai’s Minister of State for Financial Affairs, Obaid Humaid Al Tayer, show that the emirate is committed to creating a low tax environment for the foreseeable future. Speaking to reporters about Dubai’s plans for the next five years, Al Tayer said, ‘We don’t see anything [relating to] increasing the VAT rate or the excise rate. I also want to confirm that there aren’t any studies or any legislation regarding introducing income tax.’
The minister went on to state that there are also no current plans to introduce corporate tax in the emirate; and although the government has been open about exploring the possibility of tax legislation at some point in the future it’s certainly not on the immediate horizon. Any changes that do eventually transpire are likely to be minimal it seems. The UAE has built its brand as a low tax, business-first nation and it is highly unlikely to do anything to damage that reputation, or disincentivise businesses from setting up here.
As it stands, the UAE’s business owners and entrepreneurs not only benefit from no personal or corporate tax but when working from one of the country’s free zones they can also take advantage of 100% company ownership, 100% repatriation of capital and profits, no currency restrictions, and 100% import and export tax exemption. Businesses operating in such a low tax and low regulation environment are not only usually more profitable but also more valuable to investors and potential buyers.
Businesses operating in such a low tax and low regulation environment are not only usually more profitable but also more valuable to investors and potential buyers.
How to set up in the UAE
The UAE’s tax regime is just one of many factors that attract entrepreneurs from around the world to our shores. Another is the low cost and incredible ease with which you can set up a company here – business licences start at around AED 17,000 (approx USD 4,600) and the entire application process can take as little as seven days.
A company formation specialist can guide you through the process, from choosing your business activity and company name, to registering with the relevant authorities, opening bank accounts and processing visas. And all that’s required from you is a few hours of your time and some basic documents – in some cases, it’s even possible to register your business without visiting the UAE.
When you set up in the UAE, you can expect to be well supported. The UAE government runs a number of initiatives aimed to help new businesses – such as the USD 540m Mohammed Bin Rashid Innovation Fund, which provides financial backing to businesses in the renewable energy, health, transportation, education and technology sectors.
And if you’re thinking of setting up here, now is a good time to be doing it. With Expo 2020 on the horizon – dubbed the biggest event in the region’s history – the economy is expected to receive a boost to the tune of USD 24bn.
There’s never been a better time to launch your UAE company – apply today and you could be trading in a matter of weeks.
Setting up your own business has never been easier. Virtuzone takes care of it all so you can focus on what matters – building your business. For more information about company formation in the UAE mainland or free zones, please call us on +971 4 457 8200, send an email to info@virtuzone.com, click here.
