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Dubai Company Formation:
Dubai Forms of Offshore Operation
 Introduction/summary
Dubai/UAE
has double taxation agreements = DTA with most other countries. EU freedom
of establishment is not applicable. For approval of the permanent
establishment according to tax laws, a commercially equipped business
operation must be installed in Dubai/UAE, and active business must be
transacted in UAE/Dubai.
Since only oil
companies and banks are subject to taxation in the UAE/Dubai, and any
other companies do not pay any taxes, this results in interesting
opportunities for investment in Dubai/UAE. In order to be able to use the
tax advantages, a permanent establishment according to DTA must be
installed in Dubai. On the one hand, a Dubai company is no offshore
company in this sense, since the UAE/Dubai also maintain double taxation
agreements with many countries – including Sweden and Denmark – but on the
other hand, the EU freedom of establishment is not applicable. Therefore,
the following prerequisites for approval of a permanent establishment
according to tax laws in Dubai must be met:
-
Place of management: A manager resident in the UAE/Dubai according to
tax laws must – at least on the outside – control the company’s
businesses.
-
There must be a commercially equipped business operation, i.e. at least
one office and one employee.
- It
must be demonstrated that the Dubai company does actively transact
business in the UAE.
Under
the stated conditions, for example the Swedish could be a majority
shareholder of the Dubai company, but nevertheless Dubai/UAE has the sole
right of taxation, provided that the Articles of Association state that
all relevant decisions are made at the shareholders’ meetings, which
exclusively take place in Dubai, at which the Swedish shareholder must be
present. However, the UAE company law stipulates that 51% of the
company shares must be held by persons resident in Dubai. As a rule, the
founder will use a “sponsor”. This requirement may be omitted in case of
company formations in the free zones. In the free zones, 100 % of the
shareholders may be foreigners.
Dubai Forms of Offshore Operation
Companies
approved for operation in Jebel Ali Free Zone are granted one of
the following types of licences, renewable annually for as long
as the company holds a valid lease from the Free Zone Authority:
-
A General
Trading Licence allows the holder to import, distribute and
store all items as per Jafza rules and regulations.
-
A Trading
Licence allows the holder to import, export, distribute and
store items specified on the licence.
-
An
Industrial Licence allows the holder to import raw materials,
carry out the manufacture of specified products and export the
finished product to anycountry.
-
A Service
Licence allows the holder to carry out the services specified
in the licence within the Free Zone. The type of service must
conform to the parent company's licence, issued by the
Economic Department or Municipality of the relevant Emirate in
the UAE.
-
A National
Industrial Licence is designed for manufacturing companies
with an ownership or shareholding of at least 51% AGCC (Arabian
Gulf Co-operation Council).
A Free Zone
Establishment - or FZE - is an establishment formed and registered
in Jebel Ali and regulated solely by the Free Zone Authority.
Such establishments must have a capital of at least Dh 1 million and
liability will be limited to the amount of paid-up capital. A FZE
need only have a single shareholder and is an independent legal
entity.
Any company, organisation or individual wishing to form a Free Zone
Establishment must submit a completed application form to the FZE
Department of the Free Zone Authority. A decision on whether
permission has been granted will be given within 30 days of receipt
of the application and any other information and documentation
required.
If permission is granted, the Authority will record all relevant
details in the FZE Register and issue a Certificate of Formation.
This will specify the date of registration after which the FZE will
be free to conduct any such business as is permitted in its Special
Licence.
The
Dubai Internet City
is regulated by a law passed in 2000, and is formally known as Dubai
Technology, Electronic Commerce and Media Free Zone. The privileges
offered to its occupants are very similar to those applying in Jebel
Ali. In line with Dubai's liberal economic policies and regulations,
Dubai Internet City offers foreign companies 100% tax-free ownership,
100% repatriation of capital and profits, no currency restrictions,
easy registration and licensing, stringent cyber regulations,
protection of intellectual property.
The Dubai International Financial Centre (DIFC) was launched in 2003
and began operations in late 2004. lt was intended to fill a
significant gap in the market for international Shariah banking,
fund management and life assurance. The proposed regulatory
framework was published for industry consultation in June, 2003.
Philip Thorpe, chief executive of the DIFC Regulatory Authority,
explained that: 'We have...made good use of our freedom to create a
single, logical framework - in contrast to older-established
jurisdictions, who often have to make (do) and mend within existing
frameworks which may gradually become more complex and less
relevant.'
In July, 2003, the UAE Federal Cabinet approved a Federal Decree
allowing the DIFC a large degree of sovereignty. In addition to
confirming the appointment of General Sheikh Mohammed bin Rashid Al
Maktoum, UAE Defence Minister and then-Crown Prince of Dubai (now
Ruler) as the President of the DIFC, the decree officially created
the DIFC Financial Services Authority, the DIFC Judicial
Establishments and the DIFC Registrar of Companies.
The DIFC has a separate set of laws called the Commercial Code,
comprising a comprehensive set of regulations like company law,
legislation on property rights, including laws on security and
collateral, title to goods and securities, commercial transactions
and contracts, and insolvency.
In January, 2004, the Dubai Financial Services Authority (DFSA)
announced that 12 new laws relating to operations within the Dubai
International Finance Centre (DIFC) were now in place. Chief
executive officer of the DFSA, Philip Thorpe explained that:
"The
12 new laws have been drafted by the DFSA to world-class standards,
using the best examples of legislation from around the globe. They
are clear and concise, and will provide certainty as to the rights
and obligations of the financial institutions and other companies
who will operate in or from the DIFC."
The laws (to which the DFSA has provided access on its website) are:
Regulatory Law;
Companies Law;
Law on the Application of Civil and Commercial Laws in the DIFC;
Law Relating to the application of DIFC Laws;
Limited Liability Partnership Law;
Contract Law;
Insolvency Law;
Arbitration Law;
Data Protection Law;
Commercial Court Law;
General Partnership Law; and
Markets Law.
In June 2005, five new laws dealing with legal obligations,
employment and security interests in relation to the Dubai
International Financial Centre were enacted.
The new legislation comprised:
-
Employment Law
No. 4 of 2005. This law provides for minimum employment practices
comparable to established international standards, so as to promote
fair treatment of employees and employers;
-
Law of
Obligations No. 5 of 2005. This law creates a framework for
claimants to seek recovery for non-contractual claims and sets out
the rules as to when obligations arise and how disputes involving
them are resolved;
-
Implied Terms in
Contract and Unfair Terms Law No. 6 of 2005. This law provides for
fairness and certainty in contracts governed by the laws of the DIFC
by providing terms and conditions not normally included in contracts
and assures the necessary framework for their enforcement;
-
Law of Damages
and Remedies No. 7 of 2005. This law creates the structures
necessary to assure the recovery of damages and other forms of
relief to claimants within the DIFC; and
-
Law of Security
No. 9 of 2005. This law defines various forms of security interests
as collateral for repayment of debts and prescribes the process for
their perfection and enforcement.
Then in November
2005, the DIFC Trust Law 2005, which provides a comprehensive
framework for the creation of trusts in the DIFC, was enacted.
Consisting of ten major sections, the legal framework encompassed
matters such as choice of governing law, place of administration,
creation, validity and modification of a DIFC trust, office of trustee,
and duties and powers of trustees.
The Trust Law,
DIFC Law No. 11 of 2005 followed closely the enactment in September of
the Personal Property Law No. 9 of 2005, which defines the rights and
obligations of parties in relation to property other than real estate
(land and buildings) located in the DIFC, and the Law Relating to the
Application of DIFC Laws (Amended and Restated) No. 10 of 2005.
In 2006, both
the Companies Law and the Limited Partnerships Law were amended.
Dubai Tax Treatment of Offshore Operations
Amongst the incentives offered to companies operating within the Jebel
Ali Free Zone, the DIC and the DIFC are:
-
Corporate
Income Tax: No corporate income tax on profits. The
exemption is for a period of 15 years with a guarantee of an
extension for a further 15 years in the event that corporate
income tax is introduced in Dubai. Currently only banks and oil
companies are assessed to corporate income tax in Dubai. The key
difference with companies operating in JAFZ is the guarantee of
exemption in the event that corporate income tax is imposed by the
Government.
-
Withholding Taxes: No withholding taxes.
-
Import
Duty: Exemption from all import duties on goods imported
into the free trade zones. For all other imports,
duties have been largely standardised
at 5%.
Dubai
Taxation of Foreign Employees of Offshore Operations
No
personal income tax is deducted from wages and salaries paid to
employees or on other income earned. See
Domestic Personal Taxes
for the general principles of individual taxation (or lack of it) in
Dubai, which also apply to the resident employees of offshore entities.
Dubai Exchange Controls
There are no exchange controls in Dubai
Dubai
Employment & Residence
Citizens of GCC countries
(Gulf Cooperation Council: Saudi Arabia, Kuwait, Bahrain, Qatar and
the Sultanate of Oman) and British nationals with the right of abode
in the UK do not need visas to enter the UAE. GCC nationals can stay
more or less as long as they like. Britons can stay for a month and
can then apply for a visa for a further two months.
The Dubai
Naturalization & Residency Department (DNRD) issues different
types of visas which are listed below.
1) 96
hour visa:
-
Issued upon
arrival at the airport
-
Airline
sponsored only
-
Applicants
should have onward booking
-
Should have a
minimum of 8 hour transit break
2)
Visit visa:
2.1 In case of Personal sponsorship:
-
Fees: Dhs 100
-
Entry permit
application form with completed typed data
-
Original
Marriage certificate and copy of it, in case of wife sponsorship
-
Salary
Certificate; The monthly salary should not be less than Dhs. 4000
in case of wife
-
sponsorship,
and Dhs. 6000 in case of first relatives sponsorship.
-
Copy of the
Sponsor passport
-
Copy of the
Sponsored passport.
2.2 In case of
Establishments sponsorship:
-
Fees: Dhs 100
-
Entry permit
application form with completed typed data
-
Establishment
card and copy thereof
-
Copy of the
Sponsored passport.
-
Fees: Dhs 100
-
Original Entry
Permit.
A
Multiple Visit Visa can be granted after a normal visa has been issued
and used, and are an option for business visitors who are frequent
visitors to the UAE and who have a relationship with a reputable
company in the UAE. Valid for six months from date of issue, each
visit must not exceed 30 days in total. This visa costs Dh1000. The
visitor must enter the UAE on a visit visa and obtain the multiple
entry visa while in the country.
A
Residence Visa stamped on a passport proves the legal residence of an
expatriate in the country. This visa is given to workers who have
obtained work permits or for relatives living with them permanently,
and additional documentation is required.
In
June, 2004, the Dubai government unveiled plans to enshrine in law
rules governing foreign freehold ownership of property. Deputy
director general of the Dubai Chamber of Commerce and Industry (DCCI),
Ahmed Abdul Rahman Al Banna explained that:
"At
present there is no federal law to govern foreign freehold ownership
of property in Dubai," although he added that as an internim measure "major
property developers have got together to offer guarantees to investors
on freehold ownership, which has been endorsed by the Dubai government."
The
DCCI deputy director general went on to announce that: "As part of our
commitment to regulate the real estate sector, the Dubai government
will issue a new property law which will address some of the key
issues including legalising foreign freehold ownership of properties."
In
August 2006, the Dubai International Financial Centre Authority (DIFCA)
published draft legislation that will allow foreign freehold ownership
of property in the DIFC.
The
laws published included the DIFC Real Property Law 2006 and the Strata
Title Law 2006. The Real Property Law guarantees ownership of freehold
land and interest in land within the DIFC. It will allow for foreign
companies and individuals to hold freehold ownership of real estate
within the Dubai International Financial Centre.
The
Strata Title Law establishes a system of guaranteed freehold title to
units in buildings in the DIFC. It is based on the system originally
developed in Australia, which is now in use in many countries around
the world, including Singapore.
Consultation on the proposed laws ended in September 2006.
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