The financial benefits of starting a company in the UAE

Every business wants a good start in life. So if you have the chance to base yourself in a place known for its tax benefits, why wouldn’t you?

The UAE is the ideal location to relocate your business or set up a new business if you are in a high tax jurisdiction. There are a few small tax components that exist, but this is absolutely nothing compared to the freedom and opportunities that will give any new business a financial boost from the start.

So, here’s what you need to know about taxes in the UAE, and what each one means for your business.

1. VAT is set at 5%, but not every business will be liable to pay it

Value Added Tax (VAT) is a tax on the use or consumption of goods and services, paid at the point of sale by the consumer and collected by businesses—who then have to pay it back to the Government.

Introduced in the UAE at the beginning of 2018, the 5% tax was designed to provide a new source of funding to help the Government continue to supply superior public services. Yet, while it works for the benefit of everyone, VAT does not have to be paid by every business. Some companies are exempt.

VAT does not have to be paid by every business. Some companies are exempt.

With that in mind, it pays to do your research ahead of time to see if you will be one of them. For example, you won’t be liable for VAT if you are under the threshold of income per year (more on that below).

What this means for your business

If your taxable supplies and imports are over AED 375,000 per annum then you must register and pay the 5% tax. While if your supplies and imports are over AED 187,500 per annum it is only optional to register for VAT. Below this figure, you are not liable to pay anything.

If you are liable for VAT you can either decide to raise your prices by 5% to cover the tax or take it out of your company’s profit, but make sure you file your accounts properly. You will be responsible for recording your income, costs, and related VAT charges. A chartered accountant or tax professional can help you make sure your company is filing its VAT returns correctly.

2. There is no capital gains tax

Capital gains tax is where you pay tax on the profit gained from selling (or ‘disposing’ of) an item that’s increased in value over time. Overseas investors may already be familiar with this tax because it is widely used (in some form) around the world, including in Europe, the US, and Australia.

The good news is that there is no capital gains tax for businesses to deal with in the UAE. This frees up a lot of new startups from financial burdens that are often imposed by this tax.

What this means for your business

This might not affect every business, but there will be many breathing a huge sigh of relief when they realise that they won’t have to worry about capital gains tax. It is especially important to those businesses in the property industry or with other significant assets, allowing them to operate more freely and without any major tax implications from selling or disposing of those assets or shares.

3. No Personal Income Tax and No Corporate Income Tax on Most of the Businesses in UAE (Except Certain Industries)

Another great tax incentive for setting up in the UAE is the lack of corporate tax at all levels.

Selective corporate taxes are currently enforced only on petrochemical companies involved in the exploration and production of oil and gas, and foreign banking institutions.

The maximum corporate tax rate that applies to oil and gas companies is 55%, a figure that has held steady from 2003 to 2018. Meanwhile, branches of international banks are liable for 20% corporate tax on their profits.

In the free zones it’s a different matter, with businesses registered here being exempt from corporate tax for a specific period of time (which can be extended).

What this means for your business

Unless you’re in the business of oil exploration activities or banking, you don’t currently need to worry about factoring in corporate tax to your outgoings. This is another big positive for new business owners in the UAE who might well have experienced high levels of corporate tax elsewhere in the world.

This is another big positive for new business owners in the UAE who might well have experienced high levels of corporate tax elsewhere in the world.

4. Indirect benefits from tourism tax (and a boost from its reduction)

There are two types of tax that apply to visitors to the UAE: hotel tax and departure tax. The hotel tax includes municipality fees and other charges on hospitality services and room rates at hotels or guest apartments. It is charged every night of a visitor’s stay and can vary depending on the type and rating of the place in question. Dubai, for example, has a ‘Tourism Dirham’ fee charged per night, per room.

What this means for your business

The sums of money received by these indirect taxes are actively used to improve the current service delivery and infrastructure in the tourist and hospitality industries. This benefits everyone and bolsters our already superior standing on the global stage as an in-demand destination.

However, reductions in these taxes were reported last year in various emirates. For example, Abu Dhabi will see the tourism tax drop from 6% to 3.5%; the municipality fee from 4% to 2%; and hotel fees from AED 15 to AED 10. This will ensure an even bigger draw for tourists and investors to the region ahead of 2020, helping to further boost the economy, and creating fantastic opportunities for all businesses in the region to prosper.

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