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UAE Introduces Small Business Relief to Support SMEs and New Businesses
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UAE Introduces Small Business Relief to Support SMEs and New Businesses

The United Arab Emirates (UAE) Ministry of Finance has announced a new initiative to reduce the corporate tax burden and compliance costs of small and micro-businesses, including startups. Small Business Relief Ministerial Decision No. 73 of 2023 will be applicable to periods beginning after the 1st of June 2023 and ending on the 31st of December 2026. The relief is intended to promote the expansion and diversification of the UAE’s economy, as well as an environment conducive to investment and entrepreneurship.

Lower Tax Burden on Small Businesses

According to the Ministerial Decision, taxable persons with revenues of less than AED 3 million during the relevant tax period and all preceding tax periods will not be considered to have generated any taxable income. The revenue calculations will adhere to the UAE’s accepted accounting standards. However, Qualifying Free Zone Persons and members of Multinational Enterprise Groups (MNE Groups), which are groups of companies with operations in more than one country and consolidated group revenues exceeding AED 3.15 billion, will not be eligible for Small Business Relief.

The government of the UAE has announced a nine per cent tax on profits exceeding AED 375,000. When planning their finances and ensuring compliance with UAE tax laws, it is crucial for businesses to understand how to calculate their taxable corporate income.

Before calculating their corporate tax liability, businesses must determine their revenue according to the UAE’s accepted accounting standards. The Small Business Relief will apply to eligible small businesses with revenues below AED 3 million, and no corporate tax will be due. Profits exceeding AED 375,000 will be taxed at a rate of nine per cent for businesses with revenues exceeding AED 3 million.

Protecting Against Artificial Business Separation

The Ministerial Decision emphasizes that if the Federal Tax Authority (FTA) determines that taxable persons artificially separated their business or business activity to exceed the AED 3 million thresholds, such electing persons will be considered to have engaged in an arrangement to obtain a Corporate Tax advantage under Clause (1) of Article 50 of the Corporate Tax Law’s general anti-abuse rules.

Conclusion

The Small Business Relief is a significant step towards assisting SMEs and new businesses in the UAE.  To make the most of this tax relief, it is highly recommended that businesses seek the expertise of a corporate tax advisory in Dubai. IMC Group, with years of experience handling tax matters for numerous businesses in Dubai, offers exceptional advisory services tailored to the unique needs of each client.

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UAE Introduces Tax Relief Measures for Small Businesses and Government Entities
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UAE Introduces Tax Relief Measures for Small Businesses and Government Entities

The United Arab Emirates (UAE) Ministry of Finance has recently introduced several measures aimed at reducing the compliance burden for small businesses, government entities, and non-residents. These initiatives include Small Business Relief (SBR) under Article 21 of the Corporate Tax Law, Single Taxable Person (STP) treatment for government entities, and exemptions from tax registration for specific entities under Decision No. 43 of 2023. While a corporate tax advisory in Dubai can help you get the best out of the relief measures, below are the important points you need to understand.

Small Business Relief for Corporate Tax

To support small businesses and startups, the UAE Ministry of Finance has introduced SBR under Decision No. 68 of 2023, allowing eligible resident taxpayers to be treated as having no taxable income if their revenue falls below a specified threshold. To qualify for SBR, businesses must have revenues equal to or less than AED 3 million in the current and the previous tax period. The threshold applies to tax periods from June 1, 2023, to December 31, 2026. However, if a business’s revenue exceeds AED 3 million in any given tax period, SBR won’t be applicable.

Notably, certain businesses are excluded from SBR, such as qualifying free zone persons, non-resident branches of foreign companies, and group companies of MNE groups with consolidated revenues above AED 3.15 billion.

Businesses not utilizing SBR can carry forward tax losses and disallowed net interest expenses for future tax periods without SBR. Despite the relief, small businesses must still register for corporate tax with the Federal Tax Authority (FTA) and file corporate tax returns. SBR exempts eligible small businesses from Transfer Pricing Documentation requirements under Article 55.

Single Taxable Person Treatment for Government Entities

Decision No. 68 of 2023 allows government entities to treat all businesses and business activities they undertake as a Single Taxable Person (STP), reducing the compliance burden and administrative formalities. To qualify for STP status, the businesses and business activities must be conducted under a license issued by a Licensing Authority and should operate within the same Emirate for local governments.

When adding new businesses or business activities to an STP, they are directly treated as STP if the prescribed conditions are met. Notification to the FTA is required within 20 business days from the date of occurrence of such an event.

What is Corporate Tax? Why does the UAE introduce CT? When will the UAE CT regime become effective?
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The Ministry of Finance has issued Decision No. 43 of 2023, providing exemptions from tax registration for specific entities under the Taxation of Corporations and Businesses (CT Law), Federal Decree-Law No. 47 of 2022. Entities exempt from corporate tax registration include:

  • Government entities
  • Government-controlled entities
  • Persons engaged in extractive businesses or non-extractive natural resource businesses that meet the specified conditions under the CT Law
  • Non-residents deriving only state-sourced income and not having a permanent establishment (PE) in the UAE

These exemptions relieve eligible organizations from the responsibility of tax registration and filing of corporate tax returns. Non-resident entities without a PE in the UAE are neither required to obtain corporate tax registration nor file a corporate tax return if they solely earn UAE-sourced income. This decision significantly reduces the compliance burden for non-residents.

How to Calculate the Payable Corporate Tax in the UAE?

Check Your Eligibility

In the UAE, corporate tax is calculated at 9% of net profit after all deductions and adjustments are made for exempted income. Foreign taxes will be deducted from the profit in the financial statements. Taxable income is the net profit after all deductions. Only if your taxable value is greater than AED 375,000 will you be charged the 9% corporate tax.

Conclusion

The introduction of SBR, STP treatment for government entities, and tax registration exemptions under Decision No. 43 of 2023 are positive steps for the UAE, as they reduce compliance burdens and support the growth of businesses in the region. Businesses should carefully consider whether to opt in or opt out of the relief schemes based on their specific circumstances and consult with corporate tax advisory professionals in Dubai for guidance. Moreover, organizations should assess their eligibility for these exemptions, maintain appropriate records, and stay updated on any future changes in the CT Law and related regulations to ensure continued compliance with UAE tax laws.

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The Latest on UAE’s Tax Residency Rules: A Comprehensive Guide
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The Latest on UAE’s Tax Residency Rules: A Comprehensive Guide

Ministry of Finance announced Decision (no.27 of 2023), adding clarity to determine tax residency as per UAE Cabinet Decision no. 85 of 2022.

Legal entities must be established or recognized within the country to be UAE tax residents. This excludes branches of foreign entities. Companies outside the UAE can qualify if their management and control are in the UAE.

Physical presence in the UAE is a determining factor for tax residency of natural persons.

Individuals with personal and financial ties in the UAE who stay for at least 183 days within 12 consecutive months are deemed tax residents.

For UAE citizens, residents, and GCC nationals, the 90-day rule applies when they are physically present in the UAE for 90 days (or part of them) for 12 months. The latest decision clarified that owning a permanent residence is unnecessary as long as it is accessible.

The latest Ministerial decisions clarify the UAE’s 183-day rule for tax residency. Both financial and personal interests are now considered when determining tax residency. Even if a natural person stays for only 90 days, significant connections with the UAE could lead to tax residency status.

Another small detail added to determining one’s tax residency is that parts of the days will also count towards the 90-day and 183-day rules. This part significantly affects all professionals based in Dubai whose professions require substantial travel outside the Emirates.

For professionals based in Dubai who travel extensively outside the Emirates, it’s worth noting that partial days count towards the 90-day and 183-day rules. This can have a significant impact on determining their tax residency.

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Understanding UAE Corporate Tax: Exemptions, Qualifying Companies and More
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Understanding UAE Corporate Tax: Exemptions, Qualifying Companies and More

The United Arab Emirates (UAE) will introduce a Corporate Tax regime in June this year, in line with global trends for a minimum corporate tax rate. Before the new law commences, businesses must determine if they are subject to the tax and qualify for an exemption. The UAE declared its plans to establish a new Corporate Tax (CT) regime in January 2022. Subsequently, in December, Federal Decree-Law No. 47 was issued to provide a legislative framework for introducing the Federal Corporate Tax in the country.

The UAE will adopt the global minimum tax rate envisioned by the OECD, effective June 1, 2023, to enhance its appeal to businesses. The Corporate Tax regime will apply to all activities and interactions, except natural resource extraction, which will remain subject to Emirate-level corporation tax. The UAE’s new CT regime taxes businesses on their accounting net profit adjusted for specific items, with a 9% tax rate applied to taxable profits instead of gross revenue. Small businesses will receive a tax exemption on earnings up to AED 375,000 (approx. US$100,000).

Categorizations: Taxable, Exempt or Qualifying Free Zone Person?

Under the new system, businesses will be classified as Taxable, Exempt, or Qualifying Free Zone Persons (QFZP) and must determine their category and register accordingly. Some exempt entities may also need to apply for approval.

In the following section, we will examine the impact of the new CT regime on each of the three categories: Taxable, Exempt, and Qualifying Free Zone Persons (QFZP).

Taxable Person

For tax purposes, a person can be classified as either a resident or a non-resident taxable individual.

Resident person:

  • A resident individual is a legal entity incorporated or recognized in the state, including free zone persons or foreign entities managed and controlled within the state.
  • An individual who engages in a business or business activity within the state is considered a natural person for tax purposes.

Non-resident person:

  • Non-resident individuals have a nexus in the state, derive income from sources, or have a permanent establishment as per Cabinet Decision
  • For taxation purposes, a branch within the state will be considered a single taxable entity with its parent company

Exempt Person

Certain exemptions are granted automatically by a cabinet decision, while others require an application, as outlined below:

Automatically exempt:

  • The list of government entities and government-controlled entities will be specified in a cabinet decision that has not yet been published
  • Natural resource businesses are exempt from taxation by notifying UAE Ministry of Finance
  • Entities may be exempt from taxation if they are included in a Cabinet Decision (which has not yet been published) as Qualifying Public Benefit organizations

Approved by the Federal Tax Authority, an entity can be exempted:

  • Pension and social security funds that are either public or private
  • Eligible investment funds
  • UAE subsidiaries that are entirely owned and controlled by exempt entities

Qualifying free zone person (QFZP)

To be eligible for the 0% CT rate, a Qualifying Free Zone Person (QFZP) must fulfil the following requirements:

  • Ensure sufficient presence in the UAE
  • Calculates the qualifying income based on criteria defined in a forthcoming cabinet decision
  • The individual has not chosen to be liable for a 9% CT
  • Adheres to relevant transfer pricing regulations (if any)

The tax rates applicable to Qualifying Free Zone Persons meeting the specified conditions shall be as follows:

  • 0% on income that Qualifies
  • A tax rate of 9% applies to taxable income that falls outside the scope of the qualifying income definition

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DIFC Fintech Firms: Attracting Record Investment Ahead of Dubai Fintech Summit
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DIFC Fintech Firms: Attracting Record Investment Ahead of Dubai Fintech Summit

In preparation for the Dubai FinTech Summit scheduled for May 8th and 9th this year, under the patronage of His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai, Deputy Prime Minister, Minister of Finance of the UAE, and President of the Dubai International Financial Centre, Dubai is further strengthening its global standing as a centre for FinTech and innovation.

The FinTech and innovation sector in the Middle East, Africa, and South Asia (MEASA) region is growing rapidly, and it is expected to double in market value from USD 135.9 billion in 2021 to USD 266.9 billion by 2027, according to the 2022 FinTech Report by DIFC FinTech Hive. In 2022, the investment in Dubai International Financial Center (DIFC) FC’s FinTech and innovation community surpassed USD 615 million. The number of active firms in the sector increased by 36 per cent, reaching 686. The Dubai FinTech Summit will be an ideal platform for start-ups, investors, and industry leaders to connect and tap into this opportunity as they move forward in the region and beyond.

The Summit, hosted by DIFC, the foremost international financial hub in the MEASA region, will convene 5,000 FinTech and technology experts from around the world to explore advancements and obstacles in the industry. It will also showcase all aspects affecting the future of finance, including Web 3.0, Metaverse, Blockchain, decentralised finance, regulation and policymaking, and the urgent requirement for more significant financial inclusivity. Attendees can also engage with over 100 FinTech exhibitors and participate in various panels and fireside chats.

Madinat Jumeirah in Dubai is the venue for the Dubai FinTech Summit, featuring distinguished local figures such as the UAE Minister of Economy, H.E. Abdullah Bin Touq Al Marri and H.E. Essa Kazim, Governor of DIFC. The summit’s line up of speakers comprises several notable personalities, including Bill Winters, Group Chief Executive of Standard Chartered PLC; Brad Garlinghouse, CEO of Ripple; Melissa Guzy, Co-Founder and Managing, among others; Michael Shaulov, CEO of Fireblocks, and partner at Arbor Ventures.

Dubai and DIFC are now considered global centers for innovation, recognised for their unique ecosystem and comprehensive approach to business, driving not only the future of finance but also the future economy. Currently, they are home to 60% of all FinTech companies based in the GCC. In 2021, the MENA region’s FinTech startups experienced a year-over-year funding growth of 183%, as reported by MAGNITT.

Mohammad Alblooshi, Head of DIFC Innovation Hub and FinTech Hive, highlighted the increasing impact of the FinTech sector in the region. He stated that the demand for FinTech services had grown significantly in recent years, fuelled by digital technologies and innovation across various sectors. He further emphasised that DIFC has solidified its position as the finance and innovation hub in the MEASA region by providing the most comprehensive FinTech and venture capital environments. DIFC’s vision to drive the future of finance has created attractive opportunities for start-ups, global players, and unicorns to establish a base in Dubai.

His statement continued with confidence, “The Dubai FinTech Summit, organised by DIFC, is poised to become the leading platform that captures the industry’s attention and realises our vision of positioning Dubai as the new hub for the future of FinTech and finance.”

According to Michael Shaulov, CEO of Fireblocks, a secure digital asset infrastructure company, Dubai’s accomplishments in the digital asset field in recent years have been impressive. The government’s collaborative strategy with the industry has attracted some of the most innovative and dynamic firms in the digital asset industry to the region, solidifying its position as a leading FinTech center and securing its economic future. Fireblocks is enthusiastic about participating in the Dubai FinTech Summit and discovering some of the world’s top FinTech solutions.

Luis Valdich, Managing Director at Citi Ventures, expressed his excitement about FinTech, stating that it is one of the most exciting industries in both tech and banking. The industry is being disrupted by various trends, such as digitisation, open banking, embedded finance, financial inclusion, the democratisation of investing, modernisation of the core banking stack, and the emergence of the creator and shared economies are driving economic progress globally. He looks forward to exploring these innovations further as part of the upcoming summit.

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Dubai: The Gateway to Global Expansion for Indian MSMEs
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Dubai: The Gateway to Global Expansion for Indian MSMEs

In today’s changing global economy, Micro, Small, and Medium-scale enterprises play a vital role in driving economic growth and development. Indian MSMEs, which are often considered the backbone of the Indian economy, are now seeking to set up their businesses in Dubai beyond domestic markets. Dubai has emerged as their preferred destination for global expansion.

Due to its business-friendly operating environment, transparent taxation framework, high consumer adoption rate, low customer acquisition costs, and strategic location with access to a large customer base, Dubai has become the top choice for global expansion, attracting numerous micro, small, and medium enterprises from India.

Dubai’s stability, efficient governance, and dependability make it an ideal gateway to the Middle Eastern and North African markets (MENA), which comprise over 1 billion customers. This is a key factor motivating Indian MSMEs to expand their global presence through Dubai.

The trade links between African nations and the UAE have witnessed substantial growth over the last ten years, resulting in tremendous regional development with a vision for sustained progress. Moreover, the city has untapped potential to double its exports to African nations.

The Significance of Dubai's Strategic Location in International Trade

Being centrally located, Dubai serves as a gateway not just to the Middle East but also to Europe, Africa, and Asia, making importing and exporting through land, sea, and air more convenient.

With its long coastline and the world’s largest artificial port, Jebel Ali, Dubai has become the maritime hub of the region, providing unmatched trading opportunities.

Dr Thani bin Ahmed Al Zeyoudi, UAE Minister of State for Foreign Trade, stated at the World Green Economy Summit discussed the UAE’s plan to form Comprehensive Economic Partnership Agreements (CEPA) signed on February 18, 2022, with G7 countries.

From April to November 2022, the two countries witnessed a 27.5% growth in bilateral trade, with the trade value increasing to $57.8 billion from $45.3 billion in the corresponding period of the previous year. India’s exports to the UAE also saw a notable rise of $3.35 billion in value terms, showing a growth of 19.32% and reaching $20.8 billion from $17.45 billion during the same period.

Exploring the Future of Dubai-India Collaboration in the Digital Age

The launch of the Global India Collaborative (GIC) initiative at Dubai Expo 2020 aims to assist Indian MSMEs in discovering new markets and investment opportunities. Our businesses can only go global if we establish more connections between the Indian industry and the world.

Santosh Mangal, Global President of GIC, mentioned that this would aid in achieving the goal of making India a five trillion-dollar economy as Prime Minister Narendra Modi envisioned.

Business Opportunities for Start-ups in Dubai

Dubai’s visa offerings have emerged as a significant factor in attracting businesses to the city, with more relaxed laws and regulations than the other countries. The golden visa system provides long-term business visas. In contrast, the remote visa system offers additional opportunities for company formation in Dubai and operation in Dubai, even while working from outside the country. These visa options have made Dubai a desirable location for businesses, adding to the city’s reputation as a business-friendly destination.

Dubai’s appeal as an investment destination has been primarily driven by the visionary leadership of the Vice President and Prime Minister of the UAE and Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, who envisions growth through innovation. This has attracted significant global players in industries that are driving the future of the global economy to invest in the city.

The Logistics Performance Index (LPI) by the World Bank, a global benchmarking tool that measures the effectiveness of a country’s trade logistics chain, ranks the UAE 11th globally and Ranked as the top destination in the Middle East and North Africa.

Dubai has established exclusive economic zones aimed at foreign enterprises, such as the well-known Dubai International Financial Centre (DIFC), where companies are granted complete ownership and an assurance of no corporate income tax or other levies for 50 years.

The prospects of Dubai as a global business destination

Presently, the city is a diverse cosmopolitan with a substantial Indian ex-pat community and is still enticing a skilled workforce with its worldwide standing and high salaries. Dubai is favoured by numerous businesses globally, including Indian MSMEs, who acknowledge its potential as a preferred destination to extend its global outreach.

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Becoming a Tax Resident in the UAE: What You Need to Know
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Becoming a Tax Resident in the UAE: What You Need to Know

The UAE government released the Cabinet Decision No. 85 of 2022 on September 2nd, 2022, to establish tax residency regulations in the country. These regulations determine when an individual or entity, such as a natural person or a juristic person like Limited Liability Companies, public joint stock companies, and foundations, may be recognized as a tax resident in the UAE. The regulations align with globally recognized standards and will be enforced from March 1, 2023.

According to Article 3 of the Cabinet Decision, a legal or juristic individual is a tax resident if:

It is founded, formed, or recognized under the country’s legislation (this does not apply to a branch registered by a foreign juristic person), or it is a tax resident under the country’s tax law.

Under Article 4, a natural person will also be deemed a tax resident if:

  • Their primary place of residence and centre of financial and personal interests are in the UAE, or

  • If they have spent 183 days or more physically present in the UAE during a consecutive 12-month period, or

  • If they have spent 90 days or more physically present in the UAE during a consecutive 12-month period, and they are either a UAE national, hold a valid residence permit in the UAE, or are a GCC national, then they must also:

    • Maintaining a permanent residence within the country
    • Engaging in employment or business activities within the country

Under the new Corporate Tax regime, UAE Tax Resident certificate legal entities may be subject to the new Corporate Tax starting from June 1, 2023, as per Federal Decree-Law number 47 of 2022 concerning the taxation of corporations and businesses. Meanwhile, foreign legal entities may also be required to pay taxes, but only under the Corporate Tax regime.

According to Article 6 of the Cabinet Decision, if an international agreement such as a tax treaty outlines tax residency conditions for a UAE Tax Resident, those provisions will remain in effect. The Ministry of Finance will issue residency certificates in the prescribed form and method for such agreements.

If individuals fall under the definitions of tax residency mentioned above, they must obtain a Tax Domicile Certificate (TDC) by applying to the Federal Tax Authority (FTA), UAE, as per Article 5 of the Decision, to avail of the benefits and reliefs available.

The FTA is responsible for providing additional information and clarification on Cabinet Decision No. 85 of 2022. Additionally, it will establish regulations to gather the necessary information required for the implementation of the Decision’s provisions. UAE government entities are obligated to collaborate with the FTA to ensure the seamless execution of the Decision.

Previously, tax residency in the UAE was based solely on international treaties, with no domestic legislation in place. Introducing local tax residency criteria provides greater clarity and specific guidelines for those who fall under its jurisdiction.

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Why UAE’s Free Zones Are a Dream for Businesses: Corporate Tax Exemption
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Why UAE’s Free Zones Are a Dream for Businesses: Corporate Tax Exemption

The United Arab Emirates (UAE) is a favoured investment destination for foreign investors. This is primarily due to its advantageous geographical location, economic and political stability, forward-thinking business regulations, and rich talent pool.

Nevertheless, the Free Zones, dedicated areas for business activities with specialized corporate and tax rules, play a crucial role in making the UAE a thriving business hub. The Free Zones offer an unparalleled opportunity for foreign investors to set up their businesses in Dubai, an environment conducive to growth and development.

The Benefits and Challenges of Corporate Tax in UAE Free Zones

UAE’s Ministry of Finance announced a CT regime on Jan 31, 2022, but assured that current tax incentives for Free Zone entities would still be honoured. After that, on April 28, 2022, a Public Consultation Document was made available. As per guidelines the free zone entities will continue to enjoy the tax benefits if they don’t carry out business with mainland UAE and fulfill relevant regulatory requirements.

The Free Zone Advantage: How the Final CT Law Protects Your Rights

The UAE MoF released the final version of the CT law on December 9, 2022, which includes Free Zone persons as taxable individuals. Additionally, the beneficial tax regime only applies to qualifying Free Zone individuals earning qualifying income.”

Article 18 of the final law defines a qualifying Free Zone person as an entity located in the Free Zone that:

  • Must have sufficient substance
  • Must generate qualifying income as specified
  • Must comply with transfer pricing regulations under the law
  • Must not have chosen to be subjected to Corporate Tax (CT)
  • Must fulfil any additional requirements as prescribed

A Free Zone person’s qualifying income is taxed at 0%, while any other income is 9%. However, Free Zone persons may need access to the AED 3,75,000 income threshold. If eligible, a qualifying Free Zone person can apply to be taxed at the same rates as other taxable individuals.

Top Priorities for Free Zone Individuals in the UAE

Staying informed and complying with relevant regulations is essential for smooth and confident business operations. Free Zone individuals in UAE should consider key considerations to comply with regulations specific to their status. This includes visa requirements, employment restrictions, tax obligations, business licensing, banking, customs, and import/export regulations.

Maximizing Tax Benefits: A Guide for Free Zone Individuals in the UAE

A person in the Free Zone has the choice to opt for being taxed according to the regular provisions.

To comply with the arm’s length principle and disclose transactions with related parties and connected persons, Free Zone individuals must maintain sufficient transfer pricing documentation.

Free Zone individuals cannot join tax groups or receive tax relief on intra-group transfers and restructuring. Moreover, it is not allowed to transfer tax loss to or from a Free Zone person.

Free Zone companies, particularly those that belong to large groups, must assess the advantages and disadvantages of waiving the exemption since it is a one-time opportunity.

As Free Zone Companies’ revenue is divided into Qualified Income and other income, they must allocate expenses appropriately based on their earnings.

In addition, the Ministry of Finance’s FAQs have clarified that Free Zone entities that are part of a multinational group and meet the eligibility criteria will likely be subject to a distinct CT rate after implementing the Pillar Two rules in the UAE CT regime.

Conclusion

By staying informed and complying with these requirements, Dubai Free Zone Companies can maximize their success and grow their businesses confidently. Overall, the Free Zone model has proven successful. Choosing Dubai as a location for your company is likely to continue to be a key factor in the region’s long-term economic development.

In observation company formation in Dubai, as the UAE CT law becomes effective for the financial year beginning on or after 1 June 2023, companies must adjust their financial systems to ensure compliance. The upcoming cabinet notification regarding qualifying income will be closely watched to see if it aligns with the Public Consultation Document or presents any surprises.

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Dubai UAE Witnesses Growing FDI Inflow on The Back of New Visa Reforms
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Dubai UAE Witnesses Growing FDI Inflow on The Back of New Visa Reforms

New visa reforms and ease and simplicity of doing business are attracting a growing number of foreign investors for new business setup in Dubai UAE.

As per a report, the UAE government has initiated several measures to make it easy for overseas investors to relocate their business into the country and this will, in all likelihood, result in higher FDI inflow into its economy.

A PRO Services in Dubai UAE recently reported about rising inquiries relating to new visa options for setting up a business in the emirates duly suggesting that the country is all set to witness more HNIs and millionaires this year.

Another UAE-based business consultancy firm reported receiving an increasing number of inquiries and clarification about new visa options including golden visa, investor visa, and freelance visa as many overseas investors are showing interest in joining the UAE’s tempting business community.

Besides new visa options, the UAE government’s business-friendly and forward-looking policies, a stable economy and incentivized tax systems are also becoming major factors in attracting global investors to the country’s soil.

There are reports that the UAE government is seriously considering rolling out a series of new policies to make the country’s business landscape far more attractive for foreign investors and entrepreneurs. It is learned that the government is committed to further simplifying the process of business licensing by removing other bureaucratic procedures that are still in existence.

Building Special Economic Zones (SEZ) is another new policy that the government is expected to introduce during 2023. These SEZs would likely be designed to cater to sector-specific industries and businesses including financial services, technology, and manufacturing.

Newly planned SEZs would also offer sector-specific incentives to further attract foreign investors for new company formation in Dubai UAE.

As per reports, even Covid pandemic couldn’t destabilize the country’s growing trend of new business setups that further display the strong resilience of UAE’s economy. There are also government pushes to enhance the SMEs’ participation in the economy as evidenced by increased disbursement of funds from the Emirates Development bank for the SMEs. Furthermore, the Dubai SME initiative is also providing increased networking opportunities for sustainable growth in the SME space.

Today, several sectors including real estate, e-commerce, hospitality and tourism, transportation, and logistics are booming in the UAE and industry and investment experts believe that more foreign investments are going to be poured into these sectors in the years to come. Experts are also confident that the government’s relentless push to drive technology and sustainable finance would open the doors for tremendous business growth opportunities in the coming years.

Amongst all Arabian nations, the UAE has been ranked first and 19th worldwide in attracting FDI inflows during 2022 as the World Investment Report issued by the United Nations Conference on Trade and Development (Unctad) suggests.

Industry experts forecast that FDI inflow in the UAE during 2023 could be huge, attracting a major share of USD 66 billion in potential FDI inflows into the Middle East, North Africa, and Pakistan (Menap) as the country is considered the most favored destination for investment by global investors and entrepreneurs.

The Institute of International Finance also reported that UAE had attracted an estimated $22 billion in FDI inflows during 2022 due to its business and visa reforms.

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UAE Ministry of Finance Clarifies Some Key Aspects of Newly Introduced Corporate Tax Laws
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UAE Ministry of Finance Clarifies Some Key Aspects of Newly Introduced Corporate Tax Laws

On 31 January 2022, the UAE Ministry of Finance (MoF) made the breakthrough announcement that a new federal corporate tax (CT) system will be implemented in the UAE, effective financial years commencing on or after 1 June 2023. The MoF recently clarified the following key aspects of this new CT regime.

Status of Regulation

The newly issued decree law for Corporate Tax would not have separate ‘Executive Regulations; however, would issue various cabinet decisions from time to time with detailed guidance for implementation.

Registration

The CT registration will be independent of the VAT registrations and all businesses across all the emirates would be required to register even if the taxable income is below the threshold of Dh375,000 or exempt.

Over the next few months, the Federal Tax Authority (FTA) will send out an ‘invitation to register’ to select businesses. There may not be any penalty relating to registration once the businesses register before the due date for tax return submission which is nine months from the end of the relevant financial year. Unlike VAT, there is the scope of deregistration from CT.

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Individuals

CT has been termed as a misnomer as besides corporates, even individuals including social media influencers, freelancers, sole proprietorships, or civil companies could be subject to this taxation.

Free Zones

The details of “Qualifying Free Zones” and “Qualifying income” are expected to be released soon. FZ business will require to ensure adequate substance in the UAE and fulfill other criteria to become eligible for tax exemptions.

Qualifying Group

A business with multiple Entities would need formal approval from the FTA to become a ‘qualifying group,’ not requiring intra-group transactions for tax purposes. A ‘tax group’ is allowed to submit a single tax return for all members of the group. If a business has formed a VAT tax group, it is not necessary to form a similar CT tax group or vice-versa.

Anti-abuse Rules

Businesses must furnish valid commercial reasons for reorganization without which any claim for obtaining tax benefits could be disregarded under anti-abuse rules.
Small Business Relief
Besides the taxable threshold of Dh375,000, businesses eligible for ‘small business relief’ would be considered as having Zero taxable income. More details on the small business relief are expected soon.
International Taxation
The location of key management personnel and/or board of directors, and of decision-making will determine the Place of Effective Management (PoEM). Should the PoEM of a foreign company be in the UAE, it will be covered under CT.
Documentation and Accounting

Taxable income will be computed from the books of accounts and the businesses do not need to prepare a separate set of books for tax purposes. Global accounting standards, such as IFRS, are acceptable, and for small businesses, simplified accounting procedures may be allowed.

All businesses need to retain and maintain accounting records for a minimum period of seven years even when a business is not taxable, claimed exemption, or did not pay tax in a particular year to facilitate future tax assessments.

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