The United Arab Emirates is on the shortlist of countries for any entrepreneur who is thinking of establishing a foreign company. The Middle Eastern federative state offers serious advantages to international businesspeople but there are some counterarguments to registering a company in the UAE as well. Below we discuss the main advantages and disadvantages of establishing a business entity there and some potential challenges that you may face if you choose to open a company in the UAE.
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Main advantages of registering a company in the UAE
A great number of people from other countries register business companies in the UAE. The main reasons why they do so are as follows:
- The United Arab Emirates ranks high for its overall economic development in the global indexes and it is the best-developed country in the Arab world as far as its business environment and infrastructure are concerned.
- The Emirates has the second largest economy in the Arab world. The country’s GDP has grown by more than 230 times since 1971. There is no arguing that oil and natural gas mining brings the largest portion of income to the national budget. However, other sectors of the UAE economy are also well-developed or they are developing very fast. These include the transportation network, the banking industry, the service industry, the tourist industry, and others.
- The Emirates of Dubai and Abu Dhabi are large financial centers that offer business instruments typical of offshore jurisdictions. At the same time, while some other offshore jurisdictions face certain reputational issues, the reputation of both Dubai and Abu Dhabi is spotless.
- The Emirates have never found themselves on any black lists compiled by such international organizations as the OECD or FATF, nor any national black lists.
- Since the reforms took place in the 1970s, the economy of the country has been growing at an unmatched pace.
Tax incentives found in the UAE
Many foreign entrepreneurs choose to domicile their companies in the UAE because the tax burden is comparatively low in the country.
- If you handle the matter of forming a company in the UAE with care, you can increase your profit margin to a great extent. UAE-based companies registered in Free Economic Zones (of which there are plenty in the country) pay no corporate tax on their international business operations nor any customs duties.
- Not only corporations are tax exempt in the UAE: personal income is not taxed in the country either.
- The reporting requirements are relaxed for companies of many types registered in the UAE. No audit is required in many cases.
- Finally, no capital gains tax is charged in the UAE. The VAT is 5% but it is payable only if your company does business with local partners (those domiciled outside the FEZs).
Advantages of registering a company in one of the UAE Free Economic Zones
A Free Economic Zone (or a Free Trade Zone) is an area on the territory of the UAE but it is considered a separate jurisdiction with special rules and regulations. A company can be domiciled in one of the FEZs and enjoy some benefits that are not to be found in the mainland UAE. There are more than 40 FEZs in the UAE thus far but new Zones can be created in the future.
Those foreigners who register companies in the UAE FEZs find the following main advantages there:
- 100% foreign ownership of the company is possible.
- Corporate tax exemption for 50 years. No customs duties are payable either on the condition that the FEZ-registered company does not enter any business agreements with UAE companies outside the FEZ. Trade with all foreign states is duty free as well as trade within the FEZ.
- No currency control and no restriction on capital withdrawal.
- A wide choice of ultra-modern offices, warehouses, and production facilities;
- All sorts of logistic facilities;
- Comfortable residential accommodations for company owners and personnel on the premises of the FEZ.
Advantages of registering an offshore company in the UAE
If you domicile your company in a FEZ, you can make it an offshore company. In this case, you will find the following benefits:
- An offshore company can be fully owned by foreign nationals and it can have a sole founder/ director. The nationality of the company founder/ director does not matter: he or she does not have to be a resident/ citizen of the UAE.
- You can open an LLC in Dubai or elsewhere in the UAE and pay no taxes on your international business operations. No audits are required either.
- Registering an offshore company in the UAE is a good chance to protect the confidentiality of the company owners’ personal data. The information about the ultimate beneficiary company owners is not available to the public in the UAE.
- Registering an offshore company in the UAE is fast and easy and all the corporate documents can be made in English rather than Arabic.
Disadvantages of registering a company in the UAE
The reasons to register a company in the UAE may be compelling but you also have to take into account some challenges that you may have to face if you decide to start a business venture in the country. The main disadvantages of establishing a company in the UAE include the following ones:
- Every Emirate of the UAE and every FIZ on the territory of each Emirate will have its own corporate laws that regulate the processes of establishing and operating a company there. You may have to spend a lot of time studying the local legislation especially if you ignore the opportunity to apply for some professional assistance in registering a company in the UAE.
- Public tenders is a multibillion sector of the UAE economy but foreign companies are certainly at a disadvantage there: they can seldom compete with local companies. Besides, if a non-resident company finds itself in a legal dispute with a resident company, its chances for winning the case are going to be rather slender.
- Companies domiciled in Free Economic Zones cannot do business in the rest of the UAE. Such a company will have no access to a huge market with some fantastic business opportunities.
Even though registering a company in the UAE has both pros and cons, the advantages clearly outweigh the disadvantages.