The UAE fully complies with international tax laws and regulations and off course with the notion of management and control in order to determine whether a legal person / company should be subject to local UAE tax.
In other words, the fact that a UAE company has been created does not mean that it is automatically subject to local UAE tax law. Its management and control should also be conducted within the UAE otherwise it could be subject to overseas taxation.
Example: Stand Alone Company
A company was created in the UAE but it has no employees and its shareholders and directors reside abroad.
Q: Should this company be taxed in the UAE?
A: No, as the effective management and control is outside the UAE, it should be taxed where the persons making decisions for the company reside.
Example: Subsidiary Company
Subsidiary company belongs to a USA parent.
Q: Should this subsidiary company be taxed in the UAE?
A: Only if its effective management and control takes place in the UAE and not the USA.
Q: How can we evidence effective management and control?
A: By ascertain the below steps:
- All key management and strategic decisions are in substance made in the UAE
- Board meetings are held in the UAE
- All board members are resident in the UAE
Example: Foreign entity managed and controlled in the UAE
A Cyprus company has a UAE resident who is the sole director, secretary and shareholder. In other words the decision making of this Cyprus company is being conducted from the UAE.
Q: Should this Cyprus company be taxed under Cyprus tax or under UEA tax?
A: as the management and control is exercise in the UAE this company is subject to UAE tax and as such is tax free.
Notes: In situations like this the below factors must be taken into consideration:
- Each case needs to be determined with regard to specific facts and circumstances.
- One of the key factors being where key management and commercial decisions related to strategic and policy matters necessary for the conduct of the company's business are regularly and predominantly made in the UAE.
Conclusion
Having a company created in the UAE does not mean that it should be automatically taxed in the UAE. The effective management and control of the company should be ascertained by taking into account the below criteria:
- All key management and strategic decisions are in substance made in the UAE
- Board meetings are held in the UAE
- All board members are resident in the UAE
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.
