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.

Do individuals pay corporate tax on salary?
No. Salary stays outside CT. A person pays CT only on business income when the person runs a licensed business and crosses the turnover threshold.
Can a free zone company sell to the mainland and keep 0%?
It depends on the activity, the role in the supply chain, and the de-minimis rules. Non-qualifying mainland income generally faces 9%.
Do small firms need audited accounts?
Some firms may use IFRS for SMEs, but certain categories, including many free zone persons seeking QFZP status or entities above revenue thresholds, need audited statements.
What records must a taxpayer keep?
Keep ledgers, invoices, contracts, bank statements, TP files, and working papers for the statutory period. Keep scans and hard copies when needed.
When is the CT return due?
The return and payment are due within nine months after the end of the tax period. Add the date to your calendar with early reminders.

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