Known as a popular and respected business hub, Dubai is an ideal destination for those interested in placing their activities and generating money in the Emirate’s significant sectors. With a great taxation regime related not only to Dubai’s free zones, investors are encouraged to discover the benefits of the business environment in the UAE. In matters of legislation regarding the taxation system, our lawyers in Dubai can provide the necessary legal support when opening a company in the city.
Dividends in Dubai
A company incorporated in Dubai does not have to pay tax on the dividend income received from a local or foreign investment. Dubai imposes no withholding tax on dividends paid to local or foreign recipients. Also, dividend payments are not tax-deductible from the paying company. Shareholders of Dubai companies can be entitled to receive dividend payments, as per the company’s internal rules and regulations. The manner in which the dividend payment is made to the shareholders is chosen by the owner.
Branches in Dubai which are subject to dividend payment to a parent company abroad can benefit from the double tax treaties signed by the UAE and other countries. Our attorneys in Dubai can tell you more about these treaties and can give you more information about how your business is influenced by them, apart from the regulations concerning dividends.
Taxation in Dubai
Dubai does not impose taxes on the profits made by companies and individuals. This means that the Emirate does not have a personal income tax. As for the corporate income tax, this is applicable to companies with profits of more than AED 375,000 at a rate of 9%. Foreign nationals who want to invest in Dubai need to comply with a few special requirements, like obtaining a free trade zone license (if investing in such a zone), and special approvals for hiring local or foreign employees and others.
UAE signed several double taxation treaties with countries like Ukraine, Georgia, Austria, Portugal, Spain, South Korea, Algeria, Andorra, Macedonia, Mongolia, Estonia, Belarus, Belgium, Canada, Bulgaria, Liechtenstein, Thailand, Italy, Cyprus, Ireland, Japan, Uruguay, Germany, Lebanon, Morocco, Greece, Latvia, Malaysia, Pakistan, Poland, Romania, Sudan, Kenya, Barbados, Armenia, Tunisia and many more to avoid the taxation on profits twice. In this matter, companies are protected by the double taxation agreements comprising exemptions for shipping and air transportation, tax reductions for foreign investments, reduced tax rates for capital gains, etc. The dividends, the interests and the royalties are protected by the provisions of the double taxation conventions signed by UAE with countries worldwide. Even companies established in Dubai’s free trade zones are protected by these double taxation treaties. Further information about the taxes you need to pay in Dubai can be explained by our lawyers in Dubai.
Is there any corporate tax in Dubai?
The new corporate tax imposed at a rate of 9% is set to become effective at the beginning of the summer of 2023. Branches of foreign banks plus the oil and gas companies are subject to the corporate taxes of 20% and 55% respectively. The concession contracts and the audited financial statements stand at the base of corporate taxes which need to be paid by foreign companies activating in the above-mentioned sectors of business.
Tax minimization methods in Dubai
Even though Dubai has an appealing tax regime where there is no dividend tax, there are company owners who would like to reduce the taxes in their firms. This is the case where a tax minimization method can be successfully applied. Creating charitable donations, investing in mutual funds and establishing solid retirement plans are among the tax minimization tools for local and foreign companies in Dubai. For tax-efficient investment plans, an experienced advisor might be the key for your business in Dubai. Such a consultant can tell you more about the dividend tax and about the VAT which was recently introduced in the UAE.
Tax news to consider in Dubai’s business environment
Starting with October 2017, the financial authorities in Dubai announced the introduction of the excise tax which is imposed to the category of unhealthy products. Sugary and carbonated drinks, alongside tobacco products are levied with an excise tax of 50% of the price. Shops, pubs, hotels, restaurants, and bars already introduced the excise tax for such products, as soon as the legislation in this matter has been adopted and implemented.
After long debates and analyses made by the financial authorities in the Gulf Cooperation Council, the VAT at a rate of 5% was adopted as a new fiscal measure for 2018. It is good to know that only a few categories of products and services will suffer price changes due to the VAT tax which is set at 5%. Education, healthcare, basic food, clothes, international transport and export of goods are among sectors where VAT will not be imposed. Even if the tourism in Dubai represents a large source of income in the UAE, there will be no exceptions regarding the VAT, but with the mention that it will be settled at low rates.
We remind that for the moment the dividends are not subject to any kind of taxation in Dubai, the profits of companies registered here being entirely protected from this point of view. This also includes the businesses which are settled with foreign capital in the UAE’s territory. Additionally, there are no taxes on royalties, capital gains, interests, or on personal incomes. This kind of taxation system is part of an important plan to encourage as much as possible the foreign investments in the UAE.
Making investments in Dubai
Opening a company in Dubai solicits a business visa which is easily obtained by foreigners. The reasons why international investors decide for business development in the UAE and especially in Dubai are multiple, and among these, the excellent business climate and opportunities. The lack of taxation except the foreign banks and oil companies in Dubai make numerous entrepreneurs relocate to Dubai and start making investments. The infrastructure plays a major role in making a business in Dubai and that because the transportation system is highly developed and continues to progress at a fast pace. The same thing is available for the economy of UAE and Dubai where there is a high interest in the real estate market which generates large profits. The agriculture, the tourism sector, the import and export business, the R&D sector plus the real estate field are preferred in a large amount by international investors who are aware about the business direction and growth in the UAE. The authorities in the UAE sustained the foreign investments from the very beginning and heartened entrepreneurs from overseas with a series of incentives, encouragements and business-wise supports at any time. This is how the free zones in Dubai appeared and aimed the type of investors who want to enjoy several tax benefits, less bureaucracy and a favorable business environment in each sector. The lack of taxation in Dubai’s free trade zones, including no taxation on dividends is for certain the proper strategy for making international investors decide more and more on business in the UAE. The high standards of living and the excellent business environment sustain the growth of small and medium entrepreneurs and the development of large investors in the UAE. Business persons can easily set up companies in Jebel Ali Free Zone, Dubai Outsource Zone, Dubai Auto Zone, Dubai Maritime City Free Zones, Dubai Biotechnology and Research Park, Dubai Internet City Free Zone, Dubai Healthcare City Free Zone or Dubai Multi Commodities Centre Free Zone without having to consider any tax imposed on business. Having no taxes on dividends in such free trade zones make global entrepreneurs direct the attention on doing businesses in Dubai in any field.
Having a clear picture about how the business is done and about the taxation structure in Dubai is mandatory before a foreigner runs a business. The legal support of a Dubai attorney is also essential especially for foreign investors who do not know the country’s legislation.
Real estate acquisition by foreigners is one of the biggest trends in the UAE right now. Did you know you can become a homeowner here by applying for the investment visa in Dubai? You can get in touch with our lawyers and explore your options and then choose the one that suits you the best and is in accordance with your interests.
Our lawyers in Dubai can help you open a company and make all the necessary arrangements. If you have further questions about the taxation of foreign companies in Dubai or about the investment opportunities, you can contact our Dubai law firm.