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UAE: peculiarities of taxation

The International Association of consulting and accounting organizations UHY International has been conducted a rating examination and compiled a list of countries with low level of taxation. Russia has taken the fifth place in this rating with 13% tax rate, the last places were taken by such countries as, for example the Netherlands, Germany and Italy. It should be noted that the United Arab Emirates takes the leading position in this rating as the country, which has excluded the taxation of individual persons and legal entities.

Fiscal / tax policy of the United Arab Emirates

The main feature of taxation in Dubai and the UAE is the fact that not only individual persons, but also companies involved in trading, services sector, manufacturing plants and etc are exempted from the tax levies. Besides, the fiscal policy of the state eliminates such thing as a social tax payment. The UAE have a number of advantages and opportunities for creating the international business decisions against the significant growth of the tax burden in developed countries. It is not a secret that owing to the government tax policy, the United Arab Emirates remain a relatively attractive place for carrying on the working activities and business.

The United Arab Emirates, over the past decade, has become an ideal platform for companies from all over the world, which develop their business and expand their marketing outlets. For them, the Dubai has become the profitable and stable base for successful development. The national economy of the UAE is not only the oil and gas sector, the income from which is not more than 30% of the gross national product. The active diversification of the economy has made it possible to develop rapidly the other economic sectors such as tourism and international trade, the financial sector and the entertainment industry, industry and engineering industry, services sector and finance. The absence of the corporate taxation has made the United Arab Emirates attractive for the potential investors and entrepreneurs in the variety of industries.

Exceptions in the tax system of the UAE

At the same time, the current fiscal legislation provides that the certain economic sectors are liable to taxes on the general base. In particular, the corporate taxes are levied on the companies and institutions which are engaged in the banking and oil and gas sector directly in the UAE. It is known that the oil and gas sector has become the basis of prosperity of the Emirates. The government of the United Arab Emirates, realizing the high profitability of this industry, had made her an exception when developing its tax policy. For example, the tax rate for oil producers and processing companies, which work directly in the UAE, can be 50-55%. If your company is engaged in the field of oil production and oil processing, but its activities do not deal with the oil directly in the UAE, in this case, when opening a company in the UAE, you will also be fully exempted from the taxes.

As to the banking sector, the Sharia rules are applicable. For the Arab world, the provision of the funds at interest is considered as the usury. But, such a situation does not prevent the creation of the modern banking system, which includes both foreign and local banking institutions. For institutions which are engaged in the banking sector in the UAE, the average interest rate of taxation amounts to about 20%. Besides, the banking services are provided basing both on the Sharia principles and on the usual international standards.

Thus, the fiscal system of the United Arab Emirates provides the international and local business with more competitive advantages in terms of competitiveness. It also contributes to the attraction of the foreign investments to UAE and highly qualified labor force to the national economy.

Diversification as a basis of the economic development

The fiscal public policy of the UAE does not consider the taxes as the main source of the state revenues. It is important to understand that historically the backbone of the economy of the Emirates is the mining, processing and export of oil products. Revenues from the oil and gas sector have made it possible to ensure the rapid economic growth, diversification and the development of the other related industries. And at the same time this sector, as it was mentioned above, ceased to be so important.

In particular, owing to the diversification of the revenues coming from the oil and gas sector, there is the active development of the following infrastructure objects in Dubai:

  • Jebel Ali economic zone and the Commercial Centre in Dubai;
  • Ports of Jebel Ali, Rashid;
  • grandiose buildings Burj al Arab, Dubai Mall and Burj Khalifa;
  • Unique man-made islands World and Palm Jumeirah;
  • The world's largest international re-export center;
  • Platform for the consolidation of the advanced international experience and technologies;
  • The region's largest tourist centre with modern infrastructure;
  • Various specialized areas of preferential economic trade (FEZ).

All the abovementioned projects are the powerful centres for the development of transport, industry, tourism, medicine, education , etc. These centres operate successfully and attract business, people and finance into Dubai and other emirates of the UAE.

UAE: free economic trade zones

A major government project which was designed in order to attract the foreign investors into the national economy, have become the specialized areas which possess the special economic status. Today, on the territory of the United Arab Emirates, there are more than 60 such economic zones, which offer a number of advantages and opportunities for business.

In particular the registration and incorporation of the foreign companies is carried on the following conditions on the territory of the economic zones:

  • Possibility of the foreign ownership of business without the involvement of the local partners or sponsors;
  • Provision of the import and export privileges;
  • Guarantee of the unlimited repatriation of the gained profits and investment assets;
  • Long-term tax holidays (from 15 years) with the possibility of further extension;
  • Dividends, augmentation of capital and royalties are also exempted from taxation;
  • Exemption of the employees from taxation;
  • No state currency exchange regulation;
  • No state quotas and barriers for international trade;
  • Simplified registration procedure and minimal costs on administration and maintenance of the company.

UAE: important notes for an investor

Every single free trade economic zone in the UAE has its own requirements and conditions for registration of the international and local companies. But there are standard requirements for organization-legal forms of the companies, in particular:

  • Amount of the share capital for registration of a company on the territory of the Free zone can vary from 15 thousand to 250 thousand US dollars (the amount is placed as the deposit on account in the Bank by the time of registration);
  • It is allowed from 1 to 5 owners, which can be both companies and private individuals;
  • To register a company you will need rented office premises or a virtual office – depending on the applicable regulations.

Opportunities for international tax planning

The government of the United Arab Emirates, in order to create the most comfortable investment and business climate, has signed a number of international agreements which are aimed at avoiding double taxation of the business. Such agreements make it possible to optimize the taxable base at the international level and have become an effective tool for large multinational companies and holding structures.

Thus, the tax legislation of the United Arab Emirates is attractive not only for business but also for the international companies, which can make Dubai the hub of their business operations and receive all the benefits from the extremely favourable tax regime of UAE.


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