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Is UAE a Tax Haven? Offshore Jurisdiction Review

The United Arab Emirates has been one of the world’s foremost tax havens for many decades; with their open, tax-free business model dating back to the early 20th century. Over the last five years, the nation has begun moving away from a completely tax-free environment. This began with the introduction of a 5% VAT in 2018, and now they have announced a 9% corporate tax which is scheduled to begin in June 2023. 

So, the important question is, is the UAE still the attractive tax haven it once was? And if so, what are the benefits it offers and how can you best make use of them? In this article we provide the answers to these questions. 

Go here for more info on setting up an offshore company in the UAE

Table of Contents:

Why Choose UAE as an Offshore Tax Haven?

The UAE is one of the most attractive offshore tax havens on offer for companies and individuals alike. Aside from having extensive tax advantages compared to its competitors, it provides various other benefits such as good asset protection, friendly corporate legislature, free trade, and financial privacy. It is also a stable and reputable jurisdiction and is one of the few genuine tax-havens that is compliant with all international anti-money laundering standards. 

The UAE consists of seven emirates (Abu Dhabi, Ajman, Fujairah, Sharjah, Dubai, Ras al-Khaimah, and Umm al-Quwain) in which you can incorporate an offshore company and take advantage of the tax benefits on offer. The most popular corporate vehicle is the offshore LLC.

Dubai was the pioneer in establishing the Emirate’s “Free Zones” that allow for private and foreign ownership, guaranteed repatriation of capital and profit, along with favourable tax, customs and import regulations. These free zones are now found throughout the seven emirates and are the only areas where 100 percent foreign ownership is permitted. As such, a UAE offshore LLC must be incorporated in one of these zones.

The UAE has recently begun to introduce limited tax reforms. We will discuss these in more detail later, but the important point to note is that the effect they will have on these “Free Zones” appears to be negligible. Even with these new tax reforms, the UAE will likely remain a more attractive choice than their competitors, many of which are also introducing/increasing corporate taxes.

Benefits of Setting up an Offshore Business in the UAE

    • Tax advantages: The UAE is a popular tax-free jurisdiction. Offshore LLCs incorporated in one of the free zones can benefit from zero corporate income and capital gains taxes. This looks unlikely to change even after the introduction of the new corporate tax reforms. The UAE is also one of several countries which does not levy any personal income tax on its citizens and tax residents.
    • 100% Foreign Ownership: 100% foreign ownership is permitted for a UAE LLC incorporated in a free zone. A minimum of only one LLC member is required.
    • Privacy and confidentiality: The identities of shareholders/members are not made publicly available.
    • Fast and easy incorporation process: The process of setting up an offshore company in the UAE usually takes less than a week to complete and is straightforward and simple.
    • The UAE is politically stable with a fast-growing economy. It also acts as a hub for international trade and business, with many relocating to its shores for higher income, lower taxes, and a better quality of life.
    • Company capital can be kept in any currency.
    • A UAE LLC provides limited liability protection to its members, which makes it an ideal vehicle for asset protection.
    • There are no foreign exchange controls or trade barriers.

 

  
 
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Background Information about UAE

Location

The United Arab Emirates (UAE) is located in a Middle Eastern country located at the eastern end of the Arabian Peninsula. It shares land borders with Oman and Saudi Arabia and maritime borders in the Persian Gulf with Qatar and Iran. Abu Dhabi is the official capital, but Dubai is the most populated city and is the main international hub of the UAE. 

Political Structure

The UAE is seen as an autocratic, authoritarian state by most political experts. There is no democratic electoral system, and no formal commitment to freedom of speech. The nation ranks poorly on most indices measuring levels of freedom and human rights.  

The government structure is that of a federal constitutional monarchy made of seven Sheikhdoms (one for each in Emirate). The UAE is governed by the Federal Supreme Council which consists of the ruling Sheikh from each of the seven emirates. The council elects the president and vice president (who also currently serves as prime minister). These two roles are usually performed by a sheikh from Abu Dhabi and a sheikh from Dubai respectively. 

Economy and Infrastructure

The UAE is one of the world’s wealthiest nations, with a rapid and steady economic growth over the last four decades. During this period, the real GDP has more than tripled, and the UAE now has the second largest economy in the GCC after Saudi Arabia. 

Like many other Gulf nations, a major driver of the UAE economy has been oil trade, and they possess the world’s seventh-largest oil deposits. However, their non-oil trade has also boomed in the past decades, growing to about 1.2 trillion AED (approximately $326 billion) by 2012. This represents a growth of almost 30 times over the space of three decades.

A major driver of this growth is that of international and offshore investments and trade, thanks to their liberal economic system, favourable corporate regulations, and low taxes. Other fast-growing and successful industries include tourism, accommodation and food, education, information and communication, real estate, and arts and recreation.  

Dubai is one of the top tourist destinations in the world and welcomes over 10 million tourists annually to its shores. Since the 1980s, the UAE has spent billions of dollars on developing its infrastructure, and now has the most advanced infrastructure in region, and one of the more developed in the world. This has greatly contributed to its attractiveness as a tourist destination. It therefore continues to support and drive their economy, as well as making the nation extremely liveable for its residents.

Population, Language and Culture

The UAE has a population of almost 10 million. This is an astounding increase from approximately 550,000 in 1975. The rapid growth in population has been driven mostly by the inflow of foreign workers into the country looking for better opportunities and higher income. As such, the native population (Emiratis) is now a minority in the UAE, and immigrants account for nearly 90% of the population. The majority of these immigrants come from India, Pakistan, Bangladesh, and the Philippines.  

Arabic is the official national language in the UAE, but given the large expat population, English is the primary lingua franca. Knowledge of English is usually a requirement when applying for local jobs.  

Islam is the predominant and official state religion (about 76% of the population). The government tolerates other religions and rarely interferes with their activities. 

   

 
 
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Exchange Control

There are no exchange controls. 

Type of Law

The UAE’s legal system is based on civil law.

Principle Corporate Legislation

The main body of legislation governing corporate entities is the UAE Commercial Companies Law (CCL).

Taxation

The UAE has always been viewed as a complete tax-haven, and up until a few years ago, there were no taxes of any kind on personal income, corporate income, VAT, real estate, capital gains, etc. For the most part, these attractive tax benefits remain intact. It still tops the lists of countries with zero personal income tax for its tax residents and citizens. Although they introduced VAT in 2018, it remains low at 5%, with many goods being exempted. 

Corporate Tax

At the time of writing, the UAE still does not levy any corporate taxes on either domestic or offshore businesses. However, this looks set to change soon. 

The UAE has followed the recent international trend of introducing/increasing corporate taxes, with their announcement to implement a 9% corporate tax rate from June 2023. This is partly as a movement to become less dependent on revenue from the oil industry and setup a sustainable “post-oil” economy. Perhaps more instrumental in this decision though was international pressure coming out of negotiations held at the OECD in July 2021, where 130 countries agreed to implement or increase corporate tax to at least 15%.  

The UAE is confident that this 9% tax will not significantly affect international investment, due to the following reasons:

  • It is still lower than the OECD rate of 15% and the lowest of all the gulf states. Furthermore, it remains competitive compared to other low-tax jurisdictions around the world, such as Gibraltar (10%) Ireland and Liechtenstein (both 12.5%), Hong Kong (8.5% - 16.5%), and Singapore and San Marino (both 17%).
  • The tax rate of 9% is only applied to taxable income exceeding 375,000 AED (approx. $102,000), while all income below that remains tax-free. This represents a large tax-free portion. 
  • Businesses incorporated in any of the free zones (which represents the bulk of all offshore companies) will remain tax exempt provided they meet certain requirements which have not yet been laid out*. 

*This final point seems to indicate that the tax situation in the UAE will remain largely unchanged for offshore companies based in a UAE free zone, which will not be subject to any corporate income tax, capital gains tax, withholding tax, etc. To qualify as an offshore company, it should not conduct business operations within the UAE nor derive any of its income from inside the country. 

You may still be liable to pay personal income tax in your own country of residence on profits which are repatriated from the UAE. Therefore, to maximise the tax advantages of a UAE offshore company, you should consider becoming a tax resident of a low or tax-free jurisdiction.  

The final addition to their corporate tax regime will take the form of a corporate tax of 15% on large multinational companies earning over 750 million Euros an annum, which makes the UAE compliant with the OECD’s global minimum corporate tax rate agreement. 

Personal Income, Capital Gains, and Property Tax

The new tax reforms in the UAE will not affect personal taxpayers residing in the country, who will still not be subject to personal income tax, capital gains tax, or real estate tax. 

Value Added Tax (VAT)

In 2018, the UAE introduced 5% VAT. Certain categories of supplies are exempt such as: 

  • The supply of some financial services
  • Land and residential properties
  • Local passenger transport

In addition, there are several zero-rated items where VAT will be charged at a rate of 0%, the details of which are available here.

 

 list of tax haven countries

    

UAE Offshore Company Formations From Offshore Protection

Click below for more information on UAE-based offshore company formations:

  

  
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*Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. Read more here about FATCA and CFC laws.

 

 

Disclaimer: Offshore Protection strives to keep information on this website updated, however, laws and circumstances are subject to change. All information on this website is for reference purposes only and does not constitute legal or tax advice. Contact Offshore Protection for specific advice regarding your situation.



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