The United Arab Emirates
General information about United Arab Emirates
- United Arab Emirates (UAE) is a state situated in southern coast of Persian Gulf. The capital is Dubai. The official language is Arabic. The currency is dirham (AED).
- The legislation of UAE is based on civil law and partially on Islamic law.
- UAE is a member of WTO, OPEC, UN and IMF.
- The main trade partners of UAE are China, USA, India, Germany and Japan. Oil and touristic sectors prevail in the economy of UAE.
Advantages of UAE
- UAE is one of the most favorable jurisdictions for business: it has modern trading and financial infrastructure and there are platforms for attracting foreign investors.
- UAE hold the 1st place in World Bank’s Doing Business ranking 2017 for taxation regimes and also hold the 10th place in the world economic freedom ranking as reported by The Heritage Foundation. It is the best result among all 14 countries of North Africa and Middle East.
- There are no currency control and controlled foreign companies rules.
- There are several free economic zones (FEZ) in the territory of UAE.
Features of UAE companies
- There is no income tax both for the free zone companies, and for the non-free zone UAE companies. The exception for this rule are oil exploration and production companies that are subject to corporate taxation (progressive scale with a maximum rate of 55%) and branches of foreign banks that are subject to corporate taxation at a flat rate of 20 %.
- There is no withholding tax for dividends, interest and royalty payments.
- Incoming dividends and capital gains are not subject to corporate taxation.
- The activity of UAE companies is regulated by Federal Law № 2 of 1 April 2015 that governs non-free zone UAE companies. Article 9 of this act establishes the following legal forms of non-free zone UAE companies:
a) Joint Liability Company;
b) Simple Commandite Company;
c) Limited Liability Company (LLC);
d) Private Joint Stock Company;
e) Public Joint Stock Company.
- At least 1 resident of UAE who holds at least 51 % of shares must be involved in non-free zone company structure.
- Since 1 January 2018 value added tax (VAT) is applied in the territory of UAE. The standard tax rate is 5 %, but some goods and services are not VAT taxable, or 0% tax rate is applied.
Economic zones in UAE. Ras Al Khaimah
FEZ and other economic zones in which it is possible to incorporate legal entities different to those of UAE in accordance with legislation of such economic zones exist in all emirates of UAE. Thus, incorporation procedures, activity, taxation, accounting and other features of such companies are not regulated by federal legislation. Currently there are approximately 40 economic zones for different purposes in UAE:
- In Dubai - Dubai International Financial Centre, Jebel Ali Free Zone, Dubai Airport Free Zone and others.
- In Abu Dhabi - Abu Dhabi Airport Free Zone, Abu Dhabi Global Markets, Industrial City of Abu Dhabi and others.
- In Sharjah - Hamriyah Free Zone, Sharjah Airport International Free Zone and others.
- Ajman Free Zone.
- In Ras Al Khaimah - Ras Al Khaimah Economic Zone, Ras Al Khaimah Media Free Zone and others.
- Fujairah Free Zone.
- Umm Al Quwain Free Trade Zone.
In particular, one of the most popular economic zones in UAE is Ras Al Khaimah Economic Zone (RAKEZ) that is situated in the emirate of the same name. This economic zone was formed in 2017 as a result of integration of two economic zones that existed before - RAK Free Trade Zone and RAK Investment Authority. The main advantages of RAKEZ are:
- No corporate income taxation and customs payments for re-exported goods in trading;
- 50 % cheapier maintenance of business than in the capital of UAE, Dubai;
- RAKEZ is situated near Dubai;
- Stability ranking “A” according to S&P and Fitch;
- It is represented in Top 10 of small and medium-sized cities of future according to FD ranking.
The activity of RAKEZ companies is regulated by the legislation of this economic zone, in particular by the act named RAK Economic Zone Authority Companies Regulations 2017. In accordance with this act RAKEZ free zone entities may be incorporated in 3 legal forms:
- Free Zone Establishment;
- Free Zone Limited Liability Company;
- Branches of foreign companies.
The following features are common for RAKEZ free zone entities:
- Name of the company. While choosing the name of the company client must avoid such words as Ras Al Khaimah, Emirate, UAE, RAK, RAKFTZ, RAKIA, RAKEZ, municipal, chartered, bank, trust, assurance, insurance, chamber or other words that mean the affiliation of company with government of Ras Al Khaimah or with the emirate itself. Any name must contain “FZ LLC” ending.
- Memorandum and articles of association (M&AA). This incorporation document of the company must be drafted in English language and submitted to the Registrar of companies. It contains the following information:
- Name of the company.
- Registered office address.
- Type of activity of the company.
- Share capital of the company.
- Full name, citizenship and address of all shareholders.
- Full name, citizenship and address of all directors.
- Other information that is requested by the Registrar additionally.
M&AA is the only document that is required for incorporation of the company. If the Registrar does not reject the incorporation, it issues the Certificate of Incorporation of such company.
- Shareholders. Both natural persons and legal entities of any tax residence may be shareholders of the company. Besides this, all of shareholders may be not resident in UAE. The minimum number of shareholders:
in Free Zone Limited Liability Company is 2, the maximum is 50;
in Free Zone Establishment is 1, the maximum is not limited.
- The details of shareholders must be entered into the register of shareholders which is kept in the registered office and is not publicly available.
- Share capital. The company is entitled to issue only registered shares, which may be transferred according to rules established by the M&AA. Bearer shares are not permitted. There is no minimum paid-up share capital statutory requirement, this minimum must be regulated by the M&AA. Initially the company must issue at least 1 share. The payment of capital is permitted only in AED by default, but Registrar can agree other currency for payment for any company individually.
- Directors. Only natural persons resident in any country can be directors of RAKEZ companies. Each company must have at least 1 director. The details of directors must be entered into the register of directors which is kept in the registered office and is not publicly available.
- The company may have a secretary (but it is not required).
- Annual general meetings are arranged every year not later than in 15 months after the date of previous general meeting.
- The registered office must be situated only in the territory of RAKEZ.
- The main activity of the company must be organized within RAKEZ territory. In such case a physical office may be required. The activity abroad is also permitted if it is organized together with the activity within RAKEZ.
- License. Each type of activity within RAKEZ requires a license. Such license is applicable only in the economic zone but not in the rest territory of the UAE. The company may act in UAE only through intermediary or agent.
- All RAKEZ companies must maintain accounting records and keep the relevant documents for at least 6 years after the date of its issue.
- Accounting records may be kept in any address chosen by shareholders or directors of the company, including the address different to the registered office of the company.
- Companies are entitled to choose the term of reporting period for accounting purposes and it must be not less than 6 months and not more than 18 months. The first reporting period begins with the date of incorporation.
- Accounting records of all companies must be audited obligatorily.
- Also copies of all accounting records and audit must be filed with the Registrar.
- Companies must prepare registers of shareholders and directors. Registers of directors may only be kept in registered office, while registers of shareholders may be kept either in registered office, or in the office of company’s registered agent.
- Companies are obliged to provide access to information from the registers of directors or shareholders only upon request of Registrar. Otherwise it is not subject to disclosure to third parties and is not publicly available.
- As at 2018, there is no requirement to prepare, to keep and to file the registers of beneficial owners for its public availability in UAE.
Comparison of non-free zone UAE companies and free zone companies (of Ras Al Khaimah)Non-free zone UAE companies (LLC)RAKEZ free zone companies (LLC)
Minimum of shareholders 2 2 Maximum of shareholders No limited 50 Minimum paid up capital Not established Not established Share ownership At least 51 % of shares must be held by UAE residents Non-residents may hold 100 % of shares Directors Legal entities and/or natural persons, at least 1 director Only natural persons, at least 1 director Activity Company may act directly both in UAE, and abroad Company may act directly in RAKEZ and abroad, in the rest of the territory of UAE - only through agents Licensing Not required Required Physical office in UAE Required Required Corporate income tax No No Withholding tax No No VAT Yes No Tax residence certificate Yes Yes Availability of double tax agreements Yes Yes
Tax agreements of UAE
As at July 2018 UAE has signed and ratified 78 double tax avoidance agreements (DTAs) with different jurisdictions.
Algeria Italy Republic of Korea Armenia Japan Romania Austria Jordan Russian Federation Azerbaijan Kazakhstan Serbia Bangladesh Latvia Seychelles Belarus Lebanon Singapore Belgium Liechtenstein Slovakia Bosnia and Herzegovina Lithuania Slovenia Brunei Dar-es-Salaam Luxembourg South Africa Canada Macedonia Spain China Malaysia Sri Lanka Cyprus Malta Sudan Czech Republic Mauritius Switzerland Egypt Mexico Syria Estonia Mongolia Tajikistan Fiji Montenegro Thailand Finland Morocco Tunisia France Mozambique Turkey Georgia Nitherlands Turkmenistan Germany New Zealand Ukraine Guinea Norway United Kingdom Hong Kong S.A.R. Pakistan Uruguay Hungary Panama Uzbekistan India Philippines Venezuela Indonesia Poland Viet Nam Ireland Portugal Yemen
International exchange of information
UAE is a signatory of tax information exchange agreements (TIEA) that regulate exchange of information upon request: 8 jurisdictions have bound themselves to exchange such information with UAE in accordance with TIEA conditions. Also, most of DTAAs of UAE have provisions that regulate the matters of exchange of tax information upon request.
Furthermore, UAE is a signatory of MCAA CRS (Multilateral competent Authority Agreement on Automatic Exchange of Financial Account Information) and intends to enter into the practical phase of the exchange in September 2018.
According to information of OECD portal as at July 2018 UAE committed to send the financial account information on automatic basis to the competent authorities of 54 countries, but no jurisdiction has entered UAE in its list of countries for automatic exchange. This means that the possibility of automatic exchange in practice currently is in question in UAE.