Discover the tax advantages and considerations of starting a business in Dubai in 2023. Learn about low taxes, residence permits, corporate banking challenges, and the nuances of crypto trading. Plus, explore global tax planning strategies to optimize your financial outlook. Make informed decisions for your international business endeavors.
Dubai is among the most popular jurisdictions with those who want to relocate their business to a foreign country or start a foreign company in 2023. One of the main reasons for that is a highly favorable taxation system in the emirate. Taxes in Dubai are low and there is no arguing about it.
At the same time, much will depend on the type of your business and not all kinds of companies will find Dubai the most appropriate jurisdiction. Some business types may find more benefits in other countries. For example, Hong Kong, Singapore, Georgia, Armenia as well as some EU countries offer serious incentives to foreign nationals establishing business companies there. The cost of living in Dubai is comparatively high because the living standards are also very high. Thus, you may end up overpaying if you decide to set up a company in Dubai without looking at some other countries.
Important facts about starting a company in Dubai
- It is correct to say that taxes in Dubai are low. However, there are other tax-free jurisdictions and you have to realize that some countries offer fiscal opportunities that may reduce your tax to zero too. This especially concerns software developers and other IT companies and IT startups. In Dubai, this type of company can pay a 0% profit tax but the same opportunity is also available in some other countries too.
- Dubai is an expensive jurisdiction to move your business to. Websites advertising company registration in Dubai will often claim that ‘acquiring a business license costs a few thousand dollars in Dubai’. The license itself may really cost not too much but there are certain complementary costs involved in registering a company in Dubai that you cannot possibly avoid. If you take the lawyer’s fees, the residence permit acquisition, and other expenditures into account, the final cost is going to come up to US$ 15,000 to US$ 20,000. You also have to realize that you will have to spend a considerable amount of money every year to pay for the accounting support. Even though there are practically no taxes in Dubai, the reporting requirements are in place anyway.
- The company director in Dubai has to have a residence permit in all cases. The fact of registering a company in the emirate will make you qualified for the permit so it’s not a problem at the first glance. There is an important small detail, however. You don’t have to permanently live in Dubai to keep the residence permit but you do have to visit the emirate every six months. It may be unproblematic for some people. However, if you do not plan to live in Dubai and you provide IT services, for example, from New York or Sydney, visiting Dubai on a regular basis may become rather burdensome for you.
- Opening a corporate bank account in Dubai is not an easy undertaking either. Promotional websites will give lists of banks in the emirate that work with non-residents and claim that you can easily open an account with one of them: all you have to do is pay a visit to the bank. Things have changed since 2022, however. Now your ability to open a bank account in Dubai will depend on the place where your company is registered, on your business area, on your experience in the areaб etc. It is also important if you have contracts with clients or not, if yours is a virtual or a physical office, and so on. All these issues are solvable in practice but the process of setting up a corporate bank account in other countries can be simpler than it is in Dubai.
- Another popular hype is as follows: ‘open a company in Dubai to trade in crypto; Dubai is the crypto capital of the world’. True, cryptocurrencies are legal in Dubai and you can get a license to work with cryptocurrencies in the jurisdiction. At the same time, no bank in Dubai will open a crypto account for you and perform transactions in cryptocurrencies. Therefore, if your crypto project involves the use of banking services, you will have to face some difficulties. The problem is solvable again, as you can open a crypto account in another country but you have to be aware of the nuances.
- Opening a company in Dubai, acquiring a residence permit for the company director, and setting up a bank account takes two months on average and sometimes more. You can do it within a week in some other countries.
Dividend tax in Dubai
The dividend tax is 0% in Dubai so you pay nothing in dividends there. But if you receive dividends in the jurisdiction while being a tax resident of another country, you may have to pay taxes at home. If you live in the EU, for example, you will be taxed on dividends in most member countries. Some of them, however, do offer preferential tax regimes that can enable you to pay no tax on dividends in a perfectly legal way.
If your company makes a profit in Dubai, your remuneration can come in the form of dividends or in the form of a salary. It is important to realize that taxes on salaries and taxes on dividends differ in many countries. This is the case in most European countries.
Let us give you an example that shows the importance of global tax planning.
Consider Portugal. Let us assume that you have a company in Dubai that pays you dividends. The Portuguese authorities are going to treat them as passive income, which will make you qualified for a D7 visa. The visa allows relocating to Portugal and becoming a tax resident of the country. Alternatively, you can register yourself as an employee of your company in Dubai who works remotely. This status will make you qualified for a Digital Nomad visa that has been available in Portugal since 2022. It is issued to those who have active remote income: they work in Portugal but they get paid somewhere else.
Is your tax burden going to be the same in both cases? No, it is not!
- If you receive income in the form of dividends from your Dubai-based company, then your source of income is outside Portugal. This will make you qualified for Non-Habitual Residence in the country. Non-Habitual Residents are tax-exempt on foreign sources of income for 10 years in Portugal. Thus, you will pay 0% in Dubai and 0% in Portugal for ten years and your dividends will be legally tax-free.
- If you receive income in the form of a salary, this will count as an income made within Portugal. The following principle is applied in the country: ‘if you are a hired person working in Portugal and getting wages in another country, your income is considered Portuguese-made because you are physically present in the country. (By the way, the same principle applies in Georgia in the Caucasus, which is not a well-known fact.) In this case, instead of paying 0% in taxes, you will be taxed on a progressive scale and if your income exceeds 80,882 euros per year, you will have to pay a whopping 48% tax!
What conclusion should we make from this example? If you plan your global taxes wisely, you will pay 0% in taxes for 10 years. If you plan your global taxes unwisely, you will pay 48%. Because the difference is obviously huge, please do not be shy to seek professional advice on global tax planning.
