Dubai legal and accounting and tax considerations in 2023
Since 2003, Healy Consultants Group assists our Clients with timely compliance of their annual legal, accounting and tax obligations in Dubai.
- Dubai tax system exempts individuals from personal income tax. That said, customs duties of 5% apply to imports. Additionally, in 2022 UAE government has introduce 9% Corporate Tax effective in 2023. For details please refer to this webpage (click link);
- Value Added Tax (VAT) has been implemented in Dubai effective from 1st January 2018. The standard rate is 5% with some limited exceptions like basic food items, healthcare and education. Registration in VAT is mandatory for taxable persons resident in UAE, if, taxable supplies exceed AED 375,000, whereas, voluntary registration applies when threshold exceeds AED 187,5000. Healy Consultants will assist our Clients in VAT registration.
- Real property transfer tax is 4%, borne equally by the buyer and the seller. Excise tax is payable on the importation, manufacture, and stock piling of excisable goods, inclusive of carbonated beverages, energy drinks and tobacco.
- Oil, gas exploration and production companies, petrochemical companies are taxed at progressive rates of up to 55% (it may differ as per specific government concession agreement). Branches of foreign banks are taxed generally at a flat rate of 20%.
- All goods imported into the UAE require customs clearance which may only be obtained upon payment of the applicable customs duty. The rate of customs duty is 5% of the value of goods plus cost freight insurance. If an importer fails to settle the duty, the customs authorities are empowered to sell the goods to recover the due amount.
- Municipal fees of 10% is charged on commercial properties and 5% on residential properties. There is also 10% municipal tax on certain hotel revenues and entertainment.
- For UAE nationals, social security rates for employer and employee are 12.5% and 5% on monthly contractual salary.
- The labour law also stipulates that companies with over 100 employees must use a ‘wage protection system’ through the Ministry of Labour. Expatriates employed by a UAE employer are entitled to the ‘end of service’ benefit.
Tax reporting, accounting, and auditing considerations
- Local companies will be required to register for Corporate Income tax and submit an annual declaration or return. This also applies to companies which are exempted from paying local CIT. For additional details, please refer to this webpage (click link).
- VAT returns generally are filed on monthly or quarterly basis depending on the business turnover. However, they must be filed online by the 28th day of the month following end of the reporting quarter.
- Normally companies must submit the audited financial accounts to the Federal Tax Authority within 90 days of a Free Zone company financial year-end. The first financial year from the date of incorporation may not exceed 18 months or be for less than 6 months. Nevertheless, companies may request to extend the deadline for the submission of these reports.
Penalty type Penalty amount Failure to keep the required records and other information specified in the tax laws AED 10,000 for each violation, or AED 20,000 in each case of a repeated violation Failure to submit data, records and documents related to Tax in Arabic to the Federal Tax Authority (FTA) AED 5,000 for each violation Failure to file a Tax Return within the specified timeframes AED 500 for each month (or part thereof) for the first 12 months, and AED 1,000 for each month (or part thereof) from the 13th month onwards. Failure to settle the Payable Tax Monthly penalty of 14% per year Submitting an incorrect Tax Return AED 500 unless the Tax Return is corrected before the deadline for submission
Dubai company tax exemption package
- UAE has Double Taxation Avoidance Agreements (DTAA) with more than 90 countries including Canada, China, France, Germany, India and Singapore.
- All supplies of goods and services made in the UAE are taxable supplies. However, the UAE’s Cabinet lists 20 free zones across the country as designated free zones under special treatment under VAT law. In order for an area located within one of the Designated Zones to qualify as being outside the UAE (for VAT purposes), it must also meet the criteria of Article 51 of the Executive Regulations:
- It is a specific fenced geographic area; and
- It has security measures and Customs controls in place to monitor the entry and exit of individuals and movement of goods to and from the area; and
- It has internal procedures regarding the method of keeping, storing and processing of goods within the area; and
- The operator of the Designated Zone must comply with the procedures set out by the FTA.
- It is only when the area within the Designated Zone meets all the requirements of Article 51 of the Executive Regulations should it be treated as outside the UAE territory for VAT purposes (applicable to specific supplies of goods only).
Otherwise, businesses established within a designated zone have the same VAT compliance obligations and rights as non-Designated Zone businesses.
Healy Consultants Group fees for accounting and tax support
- Healy Consultants will assist our Clients with company registration and maintenance i) preparing forecasts, budgets, and sensitivity analysis for Dubai business set up; ii) documenting and implementing accounting procedures; iii) implementing financial accounting software; iv) preparation of financial accounting records.
- For an active trading company, our accounting and tax fees are an estimate of Healy Consultants fees to efficiently and effectively discharge your annual company accounting and tax obligations. Following receipt of a set of draft accounting numbers from your company, Healy Consultants will more accurately advise accounting and tax fees. For a dormant company, Healy Consultants fees are only US$1,200.
- It is important our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile; and they will fullfil those obligations annually. Let us know if you need Healy Consultants’ help to clarify your annual reporting obligations.
- A delay penalty of US$274 (AED1,000) per month to a maximum of US$2,740 (AED10,000) per annum will be imposed in case of branch renewal delays.
Legal and compliance
Healy Consultants Compliance Department assists our Clients efficiently and completely discharge legal and compliance management.
- The legal framework of the Emirates is a dual acting system which comprises of mainly Islamic shariah and aspects of conventional law. These include the Constitution, Federal Laws and regulations, Emirate Laws and regulations and Shari’s Laws;
- During Dubai incorporation process, our Clients will be required to appoint a manager. The manager is appointed by the memorandum of association or by a separate management contract. Unless otherwise stated in the MOA, the company manager shall enjoy full powers of administration, and his acts shall be binding to the Company, provided that it is supported with stating the capacity he enjoys;
- The memorandum of association is a contract between the shareholders and comprises i) company activities ii) registered office address iii) shareholder and director details iv) share capital v) profit distribution method in the company;
- The shareholders are real owners of the company and the Directors are appointed, replaced, dismissed by shareholders of the company. The Director’s role is limited to day to day management of the company. The identities of shareholders and directors are on the public register;
- Each business activity requires different government approvals, permits and licenses to run the business apart from just registering the company. There is an obligation to register particular products and services with the government, including food, medical equipment, cosmetics, and medicine;
- It is not possible to incorporate company in one Emirate and setup office in another Emirate;
- UAE is a full member of i) the World Intellectual Property Organization (WIPO) ii) the World Trade Organization (WTO) iii) the Paris Convention iv) the Patent Cooperation Treaty (PCT) v) the WIPO Copyright Treaty vi) the WIPO Performances and Phonograms Treaty and vii) the Rome Convention;
- A foreign company can start business by setting up a branch or by incorporating a company or a joint venture. A branch of a foreign company is required to have an agent, who is either a UAE national or a wholly owned subsidiary having UAE nationals as beneficial owners. There is liberalized Foreign Investment Policy in Dubai while activities like telecommunications or petroleum have restrictions on foreign ownership.
- Additional licenses required to carry on business in Dubai are:
- A trade license for buying and selling of goods including wholesale or retail trade enterprises, contractors, hotels, transport and storing establishments, etc;
- An industrial license to discover natural resources or transform raw materials into manufactured products;
- A professional license to practice any profession such as engineering consultancy, auditing and accounting, business set up, medical, and educational services.
- Foreign companies are permitted to establish branch or incorporate wholly -owned subsidiary in free trade zones without the need to appoint a UAE national sponsor or have any UAE national ownership;
- A Dubai LLC is required to renew its business license and registration with the local authorities;
- It is not permitted to have two different classified business activities under one license e.g. trading and services;
- Every company must lodge an annual return confirming relevant details of the company for the public register including names and addresses of all directors, address of principal place of business, and details of shareholders and their shares;
- Annual audited financial statements prepared on the basis of IFRS/IAS must be filed with Ministry of Commerce by businesses located outside the free trade zones. It is mandatory for foreign companies to submit the audited financial statements of the branch of foreign companies registered in UAE every year;
- The process of deregistering a company is dictated by the Government. This process will take a minimum of 6 months. Healy Consultants fee to project manage company de-registration is US$1,450. During this 6 months period it is mandatory to maintain a resident company secretary and a legal registered office.
- UAE recently approved measures to increase the Emiratisation rate for private sector.
- Mainland registered private sector employers with more than 49 skilled employees are required to hire UAE nationals and will be required to increase Emirati employees by a minimum of 2% annually until 2026. Refer to the table below for clarify. A skilled employee is defined here;
- The deadline for compliance with this new targeted increase is 1 January 2023. Non-compliant companies will be subject to fines of AED 6,000 per month. Other sanctions will additionally apply.
Number of skilled workers Number of UAE nationals be hired each year 0-49 exempted 50 One UAE national 51-100 Two UAE nationals 101-150 Three UAE nationals 151 and above One UAE nationals for every 50 skilled workers