Dubai Tax Guide For Entrepreneurs:
An Executive Summary
This is an introductory guide for Entrepreneurs, linking
in to our full Dubai Fact-File. If you'd rather dive right
in to the Fact-File, you can use the navigation on the right
of this page, or start from the Dubai
home page.
Business Formation: The major distinction
is between the various Free
Zones, where 100% foreign ownership is permitted and regulations
are light, and the rest of the country, where there are restrictions
on ownership and permission is required to start a business.
If you want to trade internationally or to provide services
to Free Zone companies, then you will be able to use one of
the special
Free Zone business formats, and the bureaucracy is fairly
light. But if you want to trade in the general economy, then
you will have to have a local 'sleeping partner', and you
can use a regular business format such as a limited
company or a sole proprietorship; the bureaucracy is quite
dense, though. Many entrepreneurs operate very successfully
as individuals. In the regular economy all types of business
have to be registered
and to have a business licence. Whether you are in a Free
Zone or not, the good news (unless you are a bank or an oil
or gas company) is that no tax returns are necessary, since
there is no
income tax in Dubai, and no
VAT either.
Basis of Domestic Taxation: Theoretically,
there is income taxation in the regular
economy, and there isn't in the
Free Zones. But in practice the income tax law is not
enforced, except for oil and gas companies and banks. So as
regards tax, for most people and certainly for entrepreneurs,
there isn't any. It's necessary to be resident,
however, or your home country may say that you have never
left. If you're an individual, that means cutting off ties
at home; and whether you're an individual or a company, you
need to try to have a Permanent
Establishment in Dubai.
International Taxation: If an entrepreneur
has a static location, she'll trade from there, but one of
the advantages of this rather special way of life is that
you're not necessarily tied to one spot, and you have the
opportunity to base yourself in a low-tax
location. Dubai certainly qualifies on that score. Getting
your investment
returns into Dubai without tax may be straightforward
from some countries, but some countries discriminate against
low-tax locations, so the foreign country may take a bite
out of your returns, called withholding
tax. Then you have to turn to double
tax treaties to try to get the money back, and Dubai's
Double
Tax Treaties aren't much help, because they are mostly
aimed at getting good tax treatment for income flows leaving
Dubai. It's all a bit of a jungle. If you set up a branch
in a foreign country, you need to try to avoid the 'permanent
establishment' trap, and you may get bogged down in local
VAT. If you send staff - or yourself - to work in foreign
countries you need to think hard about their tax situation
in advance, both in respect of local
income taxation and perhaps because of withholding
tax.
Tax-Efficient Structures: As long as you
stay in Dubai, there is no need to worry about tax efficiency,
since there isn't any
tax. The problem comes if you are going to leave one day
and return to your high-tax home country, or perhaps move
to another high-tax jurisdiction. Obviously there is a case
to be made for locating the business focus of your investments
in a low-tax, 'offshore'
jurisdiction, and Dubai certainly qualifies on that score;
but you need to consider that Dubai doesn't have many Double
Tax Treaties, and those that it does have tend to be concerned
mostly with getting good treatment for income flows leaving
Dubai. One way or another, you should probably set up in one
of the Free
Zones rather than (or as well as) in the regular economy:
Dubai's recent economic problems have yet to play out in terms
of the ongoing taxation structure; but the Free Zones are
well insulated from the regular economy.
Business Incentives: The main incentive
programme in Dubai is of course the
Free Zones, but in the regular economy the government
has made an effort lately to assist
entrepreneurial activity, although this is mostly by way
of advice and assistance rather than in monetary terms. The
banks are under pressure to help SMEs, though, with government
guarantees for lending. However, the saying: 'He who sups
with the devil needs a long spoon' comes to mind. The schemes
are well-intentioned, no doubt, but they can be intensely
bureaucratic, with very intrusive qualification procedures,
and a long 'tail' of reporting requirements. The UAE offers
support for training
programmes, initially aimed at locals, but now available
more widely.
Employing People: Many businesspeople will
just tell you: 'Don't do it'. 'Marry in haste; repent at leisure',
they say, and it was never so true than when it comes to employment.
Don't kid yourself that employees will feel that they owe
you anything. Today's workers, encouraged by a slew of anti-business
legislation from Brussels, and the general nannying attitude
of government, often feel that the world owes them a living.
Many employers of course bring problems on themselves by treating
employees as little better than slaves. Of course, there are
plenty of exceptions to these rather sweeping generalizations.
Lucky you if you find some! Most entrepreneurs run quite skinny
operations, but if you do need staff try as hard as you can
to use contractors (ie self-employed
people) rather than employees. Employment
law in Dubai is not anywhere near as nasty as it is in
the EU, but can be quite prescriptive as regards local
staff.
Welfare And Lifestyle: Meaning, for the
entrepreneur herself. Obviously, state
social welfare schemes apply to entrepreneurs as much
as to anyone else, although there may be problems if you operate
across national borders. Many entrepreneurs will want to have
improved (meaning private) health
benefits, and almost all will want to find tax-efficient
ways of making provision for their pensions.
It's important to separate these from your business itself,
in case of failure. If you have it in mind to retire to somewhere
warm and not too highly taxed, then the time to start is now,
in terms of building
up a pension away from the grasp of the tax authorities,
and Dubai is evidently a good place to begin. Social provision
is good
for locals, and free; but expats have to look after themselves
to a large extent.
International Aspects: Perhaps you plan
to live out your life as a respected and contented member
of your local community. The salt of the earth, one might
say, if that's not patronising. But some people, and perhaps
especially entrepreneurs, will find themselves drawn intentionally
or otherwise to an international existence, doing business
and/or living in other countries. There are many challenges:
apart from the difficulty of arranging your tax affairs satisfactorily,
there are the problems that go along with property
ownership, education
of your children, international removals, health
care and pension
provision, just to take some of the more obvious issues.
Of course no one can predict the future with any certainty,
but there are all too many stories of people who have trapped
themselves in the wrong investment in the wrong currency in
the wrong place, with multiple taxmen on their backs. Most
such problems are avoidable, with forethought.
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