dubai international-tax-aspects

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DUBAI INTERNATIONAL TAX ASPECTS*

TAX INCENTIVES

• No Corporation Tax

• No Personal Tax

• 100% ownership in Free Zones (FZs)

• DTTs with 80 countries

• No foreign exchange controls, trade barriers or quotas

• No restrictions on repatriation of funds

• Strong investor incentives and protection

• Easy access to key decision-makers

Unique window of opportunity, as UAE IBCs combined with the benefits of FZs and the

extensive network of DTTs make UAE a very attractive proposition

UAE CORPORATE STRUCTURES

• UAE corporate vehicles can be used as intermediate holding companies in the following circumstances:

For groups investing outside UAE aiming at dividend income streams

To hold overseas subsidiaries

To benefit from favourable withholding tax provisions

Where a jurisdiction is required that does not have CFC rules

To avail of the favourable repatriation provisions under UAE Tax Law

Suitable for a fund or investment vehicle, as there is no tax on transactions in securities

Where it may be important to achieve a tax free unwind in future

To hold real estate companies for a tax free disposal of property

To hold intellectual property companies

• UAE can be used favourably as the location for the ultimate holding company for a group that is relocating to a new jurisdiction or on formation of a new publicly-traded entity with worldwide activities

WHEN UAE FZ CAN BE USED

• Establishing a Free Zone (FZ) entity is a useful international tax planning tool

• Combine FZ with an IBC (RAK): confidentiality and nominees possible

• Global head office company: countries having DTTs with UAE

• Dubai can be utilized for:

Residence and domicile of directors and senior staff to reduce/eliminate tax in home country

Holding company (which has fiscal tax residence in UAE) to receive dividends from a subsidiary which relies on DTT

WHAT UAE IBC (RAK) CAN BE USED

• International trading and holding

• Anonymity is secured as nominees can be used and no public registry

• Easy to set up and maintain

• When no withholding taxes exist in the domestic country in case of subsidiary such as Cyprus, Malta

UAE AS HQ FOR EUROPEAN HOLDING ENTITIES

• UAE has concluded 80 DTTs

• DTTs enable investors to reap tax benefits of a UAE based entity to hold investments worldwide and also foreign investors to set up business in UAE

• Until recently countries were hesitant to conclude DTT agreements with no/low tax jurisdictions but this changed recently as newer treaty partners have realized the advantages of inward investments by wealthy countries such as UAE

• Groups/companies in countries having DTTs with UAE that use the exemption method can be ideally used to invest in UAE with significant overall tax savings as profits, dividends etc are reduced

• The most attractive DTT countries are those when sources of the UAE income are exempted altogether, in which case no tax is levied

• Groups/companies in countries having DTTs with UAE that use the credit method are not favourable as only credit for foreign taxes against domestic tax liability is allowed. However, the tax is due when remitted

CONSIDERATIONS

• Controlled foreign companies (CFCs)

• Beneficial ownership

• Avoidance of abuse

• Economic substance

• Tax residence certificates

LOW OR ZERO WITHHODLING TAX RATES

Below is a list of countries where the UAE offers the best way out of the source jurisdiction for dividends, interest, royalties and capital gains (not associated with immovable property or a permanent establishment in the source country) payable to a company considered tax resident in UAE under the respective DTT:

Austria: 0%-0%-0%-0%

Bulgaria: 5%-2%-5%-0%

China: 7%-7%-10%-0%

Georgia: 0%-0%-0%-0%

Indonesia: 10%-5%-5%-0%

Mozambique: 0%-u*-5%-0%

Netherlands: 5%-0%-0%-0%

India: 10%-12.5%-10%-0%

Poland: 5%-5%-5%-0%

*u = unlimited (no treaty protection)

Austria Belgium Cyprus Finland France

Establishing HoldCo

Substance requirement No No No No No

CFC or equivalent legislation No No No Yes Yes

Corporate tax rate 25% 33.99% 12.5% 20% 33.3%

Dividends received by HoldCo

Tax on dividends Exempt 95% Exempt Exempt Exempt 95% Exempt

Any required holding period N/A or 1 year continuous ownership

1 year N/A N/A 2 years

Required percentage ownership N/A or 10% 10% or acquisition cost of at least €2.5 mn

N/A 0%-25% 5%

Treatment of subsidiaries

Foreign subsidiary to pay tax in its own jurisdiction for any exemption in HoldCo jurisdiction to apply

No Yes, similar to Belgian corporate income tax

No Generally, no No

Any required holding period 1 year continuous ownership prior to disposal

1 year N/A 1 year 2 years

Required percentage ownership 10% N/A N/A 10% of share capital 5%

COMPARISON OF SELECTED FEATURES WITH UAE DTT

Germany Italy Luxembourg Netherlands Poland

Establishing HoldCo

Substance requirementNo No No

Generally no, yes only for financial service entities

No

CFC or equivalent legislation Yes Yes No No Yes

Corporate tax rate Generally 30.175%-33.32% in major cities

27.5%+regional tax at 3.9% (ordinary rate)

28.59% (incl the unemployment fund surcharge)+6.75% Municipal business tax

20%-25% 19%


Tax on dividends 95% exempt 95% Exempt Exempt or N/A Exempt Exempt/taxable with credit for foreign tax

Any required holding period Generally no holding period is required

N/A 1 year or commitment to hold for 1 year

N/A 2 years

Required percentage ownership Corporate income tax: 10%/municipal trade tax: 15%. Both may be reduced under a treaty

N/A 10% or acquisition cost of at least €1.2mn

5% 10%/25%/75%



No No 10.5% if non EU No No

Any required holding period N/A 12 Months 1 year or commitment to hold for 1 year

N/A N/A

Required percentage ownership N/A N/A 10% or acquisition cost of at least €6mn

5% N/A

Portugal South Africa Spain Sweden Switzerland

Establishing HoldCo

Substance requirement No No Yes No No

CFC or equivalent legislation Yes No Yes Yes No

Corporate tax rate 12.5%-27.5% 28% 30% 22% 25%


Tax on dividends Exempt Generally exempt

Exempt if certain requirements are met

Depends Exempt

Any required holding period 24 months N/A 1 year N/A 1 year N/A

Required percentage ownership 5% 10% 5% or acquisition cost greater than €20mn

N/A or 10% of votes/10% of share capital

10% or market value of CHF 1mn



No No Yes Yes No

Any required holding period 24 months N/A 1 year N/A/ 1 year 12 months

Required percentage ownership 5% 10% 5% or acquisition cost greater than €20mn

N/A or 10% of votes

10%

TAX RESIDENCE IN DUBAI

• With an FZ company which must have physical presence (even a flexi-desk/office suffices), foreign owners and executives can have UAE residence permits and obtain tax residence certificates

• For a personal tax residence certificate from the Ministry of UAE, the requirements comprise of request letter, passport copy and valid visa copy, bank statements for the last 6 months, certificate from the company stating the activity and source of income and a fee of AED 1.000 (US$300)

• Banking institutions in UAE and many outside consider UAE tax residence certificates as sufficient proof of tax residency in the UAE

STRUCTURING INVESTMENT

WITH UAE INTERMEDIATE COMPANY - 1

• No WHT on distribution of dividends by the UAE Co to the shareholders in/outside the UAE

• UAE Co dividend income from its investment in Swiss Co is exempt

• Swiss Co dividends are taxed at 5% in Switzerland

• When UAE Co transfers shares of Swiss Co, the capital gains are not taxed in Switzerland or the UAE

Dividend is tax exempt / no WHT

Capital gainson share transferis tax exempt

Dividend is reduction of WHTfrom 35% to 5%

UAE Co

Participation in Swiss Co

ShareholderOutside the UAE


• UAE Co dividends, interest, royalties from Austria Co are exempt

• Austrian Co dividends and interest are exempt. If no treaty, tax would be withheld at 25% or 20% respectively

• When UAE Co transfers shares of Austrian Co, the capital gains are not taxed in Austria or the UAE

STRUCTURING INVESTMENT




UAE Co

Participation in Austrian Co

ShareholderOutside the UAE

Dividend is tax exempt

STRUCTURING IP INVESTMENT


UAE Co

Operating Company

Parent Company

IP assets

Licensing Royalties/ Capital Gains

• UAE Co dividends, interest, royalties and capital gains are 100% tax exempt

• Royalty payments are deductable at licensee level

• Royalty payments made with applicable withholding tax with each tax treaty country

Dividend is reduced at WHTas per applicable tax treaty rate


• UAE Co dividend income from its investments in operating Co is exempt

• Operating Co dividends are exempt

• When UAE Co transfers shares of Operating Co the capital gains are not taxed in Operating Co Country or the UAE



UAE Co (IBC)

Company in a Treaty Country

Nominee Shareholder,Corporate Directors

NOMINEE STRUCTURE


UAE NETWORK OF DTTRecipient Dividends % Interest % Royalties %

Albania - - -

Algeria - - 10

Armenia -/3 - 5

Austria - - -Azerbaijan 5/10 -/7 5/10Bangladesh - - -Barbados - - -

Belarus 5/10 5 5/10

Belgium -/5/10 -/5 -/5Benin - - -

Bosnia & Herzegovina -/5/10 - 5

Brunei - - -Bulgaria -/5 -/2 -/5

Canada 5/10/15 -/10 10

China 7 7 10

Cyprus - - -

Czech Republic -/5 - 10

Egypt - -/10 10

Estonia - - -Fiji - - -Finland - - -France - - -Georgia - - -

Germany 5/10/15 - 10

Greece -/5 -/5 -/5Guinea - - -

Recipient Dividends % Interest % Royalties %

Hong Kong - - -

Hungary - - -

India 10 -/5/12.5 10

Indonesia 10 -/5 5

Ireland - - -

Italy 5/15 - 10

Japan - - -

Jordan - - -

Kazakhstan 5 10 10

Kenya - - -

Korea, Republic of 5/10 -/10 -

Latvia -/5 -/2.5 5

Lebanon - - 5

Libya - - -

Lithuania - - -

Luxembourg 5/10 - -

Malaysia 10 -/5 10

Malta - - -

Mauritius - - -

Mexico - - -

Mongolia - - 10

Montenegro -/5/10 -/10 -/5/10

Morocco -/5/10 -/10 -/10

Mozambique - - -/5

Netherlands 5/10 - -

New Zealand 15 -/10 10

Recipient Dividends % Interest % Royalties %

Pakistan 10/15 -/10 12Palestine - - -Panama 5 -/5 5Philippines -/10/15 -/10 10Poland -/5 -/5 5Portugal 5/15 -/10 5Romania -/3 -/3 3Russia - - -Serbia -/5/10 -/10 10Seychelles - - 5Singapore 5 -/7 5Slovenia -/5 -/5 -/5Spain 5/15 - -Sri Lanka -/10 -/10 10Sudan - - 5Switzerland 5/15 - -Syria - -/10 18Tajikistan - - 10Thailand 10 10/15 15Tunisia - 2.5/5/10 7.5Turkey 5/10/12 -/10 10Turkmenistan - - 10Ukraine -/5 -/3 -/10Uruguay - - -Uzbekistan -/5/15 -/10 10Venezuela 5/10 10 10Vietnam -/5/15 -/10 10Yemen - - 10

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dubai international-tax-aspects

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