UAE: A Different concept of international jurisdiction

Globalserve SeminarNovember 2013

By Phani Schiza Antoniou

• UAE OR ‘The Emirates ‘•Situated in the southeast of the Arabian Penisula on Persian Gulf•Federation of seven emirates since 1971•Dubai, Abu Dhabi, Ajman, Fujairah, Ras Al Khaimah, Sarjah, Umm Al Quwain•Legal system is founded upon civil law principles and Islamic Shari’a law, the latter constituting the guiding principle and source of law8.19 million population out of which 15% only are locals•Non Oil Sector contributes 71% to GDP

UAE- SOME FACTS

• Strategic Location :closest proximity to top European and Asian markets: Access to 2.2 Billion Consumers • World-class free zones: State of the art infrastructure •100% foreign ownership of business• 100 per cent repatriation of capital and profits• Easily accessible raw materials, cheap energy sources• Zero corporate profit taxes and personal income taxes, with zero taxation with the exemption of foreign banks and oil exporting cos• No minimum capital requirement to establish a limited liability company.• Advantageous Tax Treaties with 71 Countries • Stable Political Environment •Strong Banking Sector• World Bank ranked UAE 23rd for Doing Business in 2013•Confidentiality

WHY UAE?

•There are 3 main options for registration of company in UAE :•Mainland company – (LLC) Limited Liability Company But if the scope of the activities in the UAE is limited then• branch of foreign company or• Representative office can be considered

•Freezone company –onshore FZE or FZC • IBC company- offshore

Types of Company registration

LLC; Limited Liability company Shareholders: minimum 2 maximum 50Gives access to the local marketMaximum foreign participation allowed 49%Local partners UAE nationals with minimum 51% participationNeed office space/ warehouseResidence permit is issued Employee VISAs are eligibleNo taxation No foreign exchange restrictions Apply benefits of double tax treaties

Mainland company registration

If the scope of the activities in the UAE is limited then consider:Branch of Foreign company :

Needs local sponsorMay not carry out any commercial activity in its own name May negotiate and enter into contracts on behalf of parent company Support activities are allowed If goods are supplied must come directly from parent

Representative Office May undertake marketing and promotional activities on behalf of their parent company Not permitted to trade

Branch and Representative Office

100% foreign ownership Established at the Free Trade Zones; 40 Free zonesCould do business with companies within the free-zone or outside the countryCan do business locally only through a local distributor being a company registered in the mainlandThere are free-zones which provide license with and without taking any genuine office space/warehouse – flexi desk offices Different licenses are issued in accordance with line of business such as trading , consultancy/services , manufacturing Residence permit issuedEmployee VISAs are eligible to applyNo taxation No foreign exchange restrictions Application of double tax treaty benefits

Free-Zone onshore company Registration

The Establishment of the Free Trade Zones ( FTZs) in the UAE has been one of the most significant and promising initiatives taken to attract foreign investmentAn independent free zone authority governs each FTZOnly Jafza Free trade zone ( of Dubai) and RAK ( of Ras Al Khaimah) offer apart from free zone companies , also international business cos ( IBCs) – offshore

What are the Free Trade Zones?

Do business only outside UAE100% foreign participation Can have tax free bank account in UAE No employee VISAs are eligible to applyNo restrictions on foreign exchangeNo taxation Can aquire immovable property in the emirate where the free trade zone is i.e the Jafsa IBC can acquire real estate in Dubai and the RAK IBC can acquire property in Ras al Khaimah

Offshore company formation

Limited liability company by shares Shareholders: 1-15There is no public register of shareholders and directors although it is held at the registered office but it is not open to publicShareholders do not need to visit UAE to sign the incorporation documentsRegistered agent is needed for the incorporationNo minimum capital is required but it has to be mentioned on the M&ABearer shares not allowedCapital in AED or US$Minimum one director and secretary; it can be the same and legal entityNo annual reports are needed to be filed Change of shareholders and directors is accompanied by the resolution of members, execution of instruments , consents and amendment of M&A, while original M&A has to be returned; transfer of shares has to be approved by the registrar and proper instrument of transfer executed to be delivered at the Registrar

Offshore company formation- corporate issues

UAE OFFSHORE COMPANIES

Offshore

Jebel Ali Offshore (JAFZA)

Must for Dubai Property

Ownership

Corporate Directors are not

allowed

Ras Al Khaimah Free Trade Zone

(RAK) International Co

Corporate Directors are

allowed

UAE ONSHORE COMPANIES

Onshore

Mainland

Limited Liability Company (LLC)

Foreign Partner cannot own

more than 49%

Professional License

100% Foreign Owned but

Limited Sectors

Branch Setup

100% owned by Parent Co

Free Zones

Over 40 Free Zones to Choose From

100% Foreign Ownership

UAE RESIDENCY

• Fastest and Easiest way to become UAE Resident By obtaining “UAE Investor Visa”

• Setup a free zone company– 100% foreign ownership – No paid up share capital– No corporate tax– Travel to and from the UAE is easier– No personal income tax in the UAE– The UAE is an OECD “white listed” jurisdiction– Renewal Residency Visa every 3 years

COMPARISON

RAK OFFSHORE RAK ONSHORE

Director Legal entities allowed

1Yes

1yes

Secretary compulsory but can be same as director

Yes Yes

Registered agent needed Yes Yes

Shareholder :Minimum shareholdersNo minimum capitalLegal entities allowed

1Yes

Yes

1YesYes

Limited liability companies √ √

ConfidentialityCompany register not available for public inspection

Yes Yes

Time for registration 2 days but 2 days but

Tax No No

COMPARISON RAK OFFSHORE & RAK ONSHORE

COMPARISON

RAK OFFSHORE RAK ONSHORE

Operations Outside UAE only In Freezone and through UAE local distributor in UAE

Establishment No No

Employees No Min 1

Annual accounts Keep records only Yes

Employee VISA No Yes

Ownership property No except Jebel ali offshore ( Jafza) but

corporate directors not allowed

Yes

COMPARISON RAK OFFSHORE & RAK ONSHORE

•Dividend: 5/15% . 5% applies if min 10% shareholding

•Interest : 3%

•Royalty: 0/10%•The 0% rate applies to royalties paid for a copyright of scientific work, a patent, trademark, design or model, plan, secret formula or process, or for information (know-how) concerning industrial, commercial or scientific experience. The 10% rate applies to royalties paid in respect of literature and art works, including cinematographic movies and films for radio or TV broadcasting.

Double Tax Treaty with Ukraine

Ratified 7/6/2013 and is expected to enter into force as of 2014But limited scope of applicationCovers the UAE and 7 emirates governments, the Central Bank of UAE, Investment Authorities of Abu Dhabi and of Emirates, any financial institution or investment entity , establishment, agency or any other body wholly owned by the government of UAE WHT on dividends/interest is zero, is paid to an entity as above describedContains exchange of information clauseLimitation of benefits clause i.e tax treaty benefits may be denied if proven that the only reason was taxFacilitates inflow of investments into Russia ( note that currently UAE investors in Russia pay 20% tax on repatriated profits, 15% on profits from interest and 20% on Capital gains

Double Tax Treaty with Russia

As Holding into UkraineFor trading or for services internationally and in the region For Asset protection being the last shareholder in a structureProperty investment in UAE

USES