UAE Company Formation as per Corporate Tax Agent’s Advice

UAE Company Formation as per Corporate Tax Agent’s Advice

Starting a business in UAE offers great opportunities, but it’s important to understand the key tax and legal aspects before setting up. Here’s a brief guide on company formation in the UAE, from Tax Agent’s perspective.

Business Structure Options

  • LLC (Limited Liability Company): Requires a local partner holding 51% of shares; common for foreign investors.
  • Free Zone Company: 100 % foreign ownership, tax exemptions, ideal for specific industries like trading or manufacturing.
  • Branch of a Foreign Company: Allows full control but limited to the parent company’s activities.
  • Sole Proprietorship: Ideal for individual professionals like consultants, with limitations on employee numbers

Tax Considerations

  • Corporate Tax: 9% on profits above AED 375,000 (introduced in 2023). Freezones may be exempt if profit thresholds are met.
  • VAT 5% VAT on goods/ services; applicable to businesses with annual turnover over 375,000.
  • Withholding Tax: No withholding tax on dividends, interest o royalties. 
  • Double Taxation Treaties (DTA): The UAE has treaties with many countries to avoid double taxation.

Licensing & Registration

  • Business Activity: Must align with UAE’s approved categories.
  • Trade Name: Reserved and approved by the Authority.
  • Local Sponsor/Service Agent: Required for mainland businesses (LLC’s) but not for free zone companies.
  • Economic Substance: Some activities (e.g., banking, insurance) require proof of economic presence.

Employment Regulations

  • Visa & Work Permits: Business owners can sponsor visas for themselves and employees.
  • Labor Law: Governed by local regulations, including working hours, contracts, and end-of-service benefits.
  • WPS: Employers must ensure timely salary payments through the Wage Protection System.

Compliance & Reporting

Professional Advice

Engaging with a tax agent or business consultant is essential to navigate the setup process, ensure compliance with regulations, and optimize tax strategies.

How MACKA can help?

The UAE offers a favorable business environment but understanding local tax rules and regulations is crucial, MACKA can professionally guide you all through out and can streamline the company set up and ensure long-term success.

What is the arm’s length principle in transfer pricing?
The arm’s length principle means that companies must set prices as if they’re dealing with a third party, not a related company.
How many transfer pricing methods are there in UAE CT law?
There are five main methods, but companies can use other methods if needed.
Can I use more than one transfer pricing method for a deal?
Yes, if one method does not work well, you can use a mix to get a fair result.
What can happen if I choose the wrong transfer pricing method?
You may get tax penalties, rejected returns, or lose business opportunities.
Who can help me choose the best transfer pricing method?
Mubarak Al Ketbi (MAK) Auditing can guide you step by step with UAE CT law.

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