The United Arab Emirates (UAE) is one of the most attractive places to register a business thanks to its favorable tax system, government support, and a high level of confidentiality. Depending on your goals and the nature of your business, you can choose from several types of companies available for registration in the UAE: offshore, onshore, and companies in free economic zones (FEZ).
Let’s go over each of these company types to understand their key features, advantages, and disadvantages.
Offshore companies
Key features:
- Offshore companies in the UAE are created for conducting international business and they are not allowed to operate commercially within the country.
- These companies are often established for asset management, international trade, and property protection.
Advantages:
- Tax benefits: Offshore companies are exempted from corporate tax and do not have to pay VAT.
- Full foreign ownership: Foreign nationals can own 100% of the offshore company without the need for local partners.
- Confidentiality: The company owner’s identity can remain anonymous. This makes this type of company appealing to those who value privacy.
- No reporting or auditing requirements: Jebel Ali Free Zone is an exception though.
- Easy management: There’s no need for your physical presence in the UAE, which reduces operational costs.
Disadvantages:
- Restrictions: Offshore companies cannot do business within the UAE or work with local clients. They would need to use local agents or distributors for these purposes.
- No tax residency status: These companies do not qualify for the benefits available to UAE tax residents.
You can find a complete guide on forming an offshore company in the UAE by following the link.
Onshore (mainland) companies
Key features:
- Onshore companies are registered in the mainland UAE and they can freely conduct business both within the country and internationally.
- Registering an onshore company allows working with local clients and partners and participating in government tenders.
Advantages:
- Access to the local market: Unlike offshore companies, onshore firms can freely operate in the UAE market.
- Tender participation: Onshore companies can take part in tenders organized by both government and private entities in the UAE.
- Access to loans: Onshore companies can apply for bank loans from local financial institutions.
- Easy registration: The registration process doesn’t involve any complex procedures.
Disadvantages:
- Local partner requirement: For certain types of business, 51% of the company has to be owned by a UAE national. However, in some sectors, foreigners can own 100% of the company.
- Taxes: As of June 2023, companies with annual profits that exceed 375,000 AED (about USD 100,000) have to pay a 9% corporate tax. Onshore companies also have to pay a 5% VAT.
Companies in Free Economic Zones (FEZ)
Key features:
- FEZ are specially designated areas that offer specific tax and legal benefits. The UAE has over 50 such zones.
- Companies registered in an FEZ can engage in international trade and provide services outside the UAE.
Advantages:
- Full foreign ownership: In free zones, foreigners can own 100% of the company without the need for a local partner.
- Tax benefits: Companies in FEZs are exempted from corporate tax for up to 50 years. They also don’t have to pay VAT within the zone.
- No import duties: Companies in FEZs are exempted from paying duties on imported goods, which makes them attractive for those involved in international trade.
- Free repatriation of profits: Companies can freely transfer their earnings out of the UAE.
- Easy visa process: Owners and employees of companies registered in FEZs can obtain resident visas in the UAE.
Disadvantages:
- Business restrictions in the UAE: FEZ companies cannot directly conduct business within the UAE without using a local distributor or agent.
- Office requirement: Companies registered in a free zone are required to have a physical office within the zone.
Taxation of different company types in the UAE
Taxation in the UAE varies depending on the jurisdiction in which the company is registered: mainland (onshore company), free economic zone (FEZ), or offshore. Below are the taxation details for each of these categories.
Onshore (mainland) companies
Taxation:
- Corporate tax: Starting June 1, 2023, companies with annual profits over 375,000 AED (approximately USD 100,000) are subject to a 9% corporate tax on earnings exceeding that amount. No taxes are applied below this threshold.
- VAT: Onshore companies also have to pay a 5% value-added tax (VAT) on most goods and services sold within the UAE.
- No personal income tax: Owners and employees of onshore companies are exempted from paying income tax.
Estimated annual costs:
- Registration and licenses: AED 10,000 to 30,000 per year (approximately USD 2,700 to 8,200) depending on the emirate and the type of business.
- Office rent: Depending on location, rent can range from AED 15,000 (around USD 4,000) for small office spaces to AED 100,000 (about USD 27,000) or more for prime areas.
- Other expenses: Annual reporting, audits (if required), and administrative fees can add another AED 5,000 to 15,000 (USD 1,400 to 4,100).
Companies in Free Economic Zones (FEZ)
Taxation:
- Corporate tax exemption: Companies registered in free zones are exempted from corporate tax for up to 50 years.
- VAT: Companies in FEZs are not subject to VAT if their operations are restricted to the free zone and do not extend to the mainland. However, a 5% VAT will apply if the company provides services onshore.
- No personal income tax: As with onshore companies, owners and employees in FEZs do not pay personal income tax.
Estimated annual costs:
- Registration and licenses: AED 10,000 to 25,000 per year (approximately USD 2,700 to 6,800) depending on the zone and type of business.
- Office rent: Most free zones require companies to have a physical office. Rent can range from AED 10,000 to 50,000 (USD 2,700 to 13,500) annually, depending on the size of the office and the zone.
- Other expenses: Administrative and operational costs for running a company in a free zone can be between AED 5,000 and 15,000 (USD 1,400 to 4,100).
Offshore companies
Taxation:
- No corporate tax: Offshore companies are completely exempt from paying corporate tax.
- No VAT: Offshore companies are also exempted from VAT since they cannot engage in commercial activities within the UAE.
- No personal income tax: As with other types of companies in the UAE, offshore company owners and employees do not pay income tax.
Estimated annual costs:
- Registration and licenses: The cost for registering an offshore company and renewing the license ranges from AED 8,000 to 15,000 (approximately USD 2,200 to 4,100).
- No office requirement: Unlike other types of companies, offshore companies do not have to have a physical office, which significantly reduces maintenance costs.
- Other expenses: Various administrative fees can range from AED 3,000 to 10,000 (around USD 800 to 2,700).
Conclusion
A company registered in the UAE offers a wide range of opportunities for international business thanks to the tax benefits, ownership flexibility, and asset management options. It’s important to choose the right type of company depending on your business goals and the market where you plan to operate. Offshore companies are ideal for international business and confidentiality protection. Onshore companies provide access to local markets and government tenders, while companies in free zones offer tax incentives and the freedom to engage in international trade.
