United Arab Emirates: Achieving Economic Substance For Offshore Entities In UAE

Last Updated: 13 October 2017
Article by Oneworld Ltd

A major problem faced today by trading corporations established in offshore jurisdictions is to satisfy the "economic substance" criterion. This is the case with corporations established in traditional offshore jurisdictions including the BVI, Cayman Islands, Belize, Antigua, Nevis, St Lucia, Vanuatu etc which were set up at a time that regulations and supervision were lax and no questions were raised.

Today, however, governments, tax authorities and bankers question the legitimacy of these entities, the conduct of their activities and serious questions are raised with regard to their management and control. The legitimacy of trading activities and the continuance of no tax for these offshore entities often making substantial profits with little or no taxes paid, are in jeopardy.

While countries differ to the extent to which they allow anti avoidance legislation, a clear direction has emerged that if an entity does not have economic substance, there is an increasing risk that it will not hold up upon review by governments and tax authorities and, therefore, will not achieve the intended tax benefits. Essentially substance is increasingly necessary to counter the argument that an entity or structure set up solely for tax reasons is artificial, or is not set up for bona fide reasons which can trigger the anti avoidance legislation.

Further, tax authorities are not looking only at the place where central management and control is exercised in order to determine where a company is taxable. In fact, they are also looking at the economic rationale behind a company in a particular country. More so, if it happens to be a low or no tax country.

An increasing number of tax treaties incorporate anti avoidance provisions. Transactions which lack commercial substance or not entered into for bona fide purposes, are caught by the provisions.

UAE and economic substance

The UAE is particularly well positioned to cope with the increasing requirements from governments, tax authorities and other institutions to provide real economic substance.

By making use of UAE free zones (FZ) and mainland structures through the establishment of active branches, it is now possible to locate business functions, realize tax savings and satisfy the criteria of economic substance which is very significant. There are opportunities for companies of any size to locate business functions in the country. It is hard to think of a place where it is easy and quick to set up a business as it is in a UAE.

The UAE is a white listed onshore jurisdiction that offers business opportunities that exist only in mature industrial and financial hubs. International companies moving to the UAE find themselves in a thriving market with excellent infrastructure.

Regulations are in place in the UAE to ensure that whilst attracting worldwide businesses and enhancing its name in international financial services they adhere to high professional standards and prevailing worldwide regulations.

A pro-business government encouraging foreign investment has also developed the country into a cosmopolitan centre welcoming a diverse specialist and competitive workforce. Further, Dubai has emerged as a popular jurisdiction for the relocation of high net worth individuals and a strong alternative to UK, Switzerland, Monaco, Singapore and other countries.

Special economic zones, FZ, mainland companies (LLCs) and branches offer 100 percent ownership, repatriation of profits and capital exemption from taxes and a wide network of 70+ double tax treaties.

The Global Competitiveness Index 2016-2017 published by the World Economic Forum (WEF) ranks the UAE as the 16th country in the world in terms of competitiveness.

UAE free zone (FZ) and mainland branches

Setting up an active branch in a FZ or the UAE mainland is often very attractive. The structure meets the growing necessity in international tax planning of having necessary substance. This is impossible to deliver from the traditional offshore jurisdictions since they typically only offer an IBC regime.

By establishing a branch in a FZ or mainland UAE of an existing offshore entity registered outside UAE – be that in BVI, Cayman Islands, Belize etc - and having a flexi office, employing 1-2 local persons, the company is able to:

  1. continue unhindered activities from the UAE
  2. satisfy the criterion of economic substance and ensure legitimacy/acceptance of activities
  3. meet the requirements and satisfy the concerns of authorities and bankers
  4. as UAE is a no tax jurisdiction, pay no tax on profits
  5. take advantage of UAE's 70+ double tax treaties

General advantages of setting up a branch in the UAE include:

  • 100 percent foreign ownership
  • no restriction on profit repatriation
  • no exchange controls
  • guarantee of no corporate and personal income taxes for 15-50 years and possible renewal
  • availability of offices, factory premises and warehouses
  • excellent port, airport and road transport infrastructure
  • efficient utilities and communication means  no recruitment restrictions and assistance in obtaining work permits for expatriate staff

What we can do for you

We can consider your circumstances and proceed to advise you as to the most efficient options suitable to you. We will liaise with you and agree together a workable, tax efficient structure in line with your goals and expectations. Following this, we can set up your structure and assist you to register with government departments and authorities and provide other support services including finding suitable office accommodation, recruitments, banking etc, as to be required. Clients can expect a high degree of personal attention from Oneworld MidEast. We deliver day to day, bespoke services and solutions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.