Merchants have traversed the arid deserts of the Middle East for centuries. Often using secret oases to feed their caravans and provide vital relief to their trading activities.
Today entrepreneurs can fly over the hot sands, bypassing the need for these watering holes, but few know of the newest form of oasis giving life to businesses in the United Arab Emirates (UAE).
Known for its business-friendly environment, the UAE offers a unique set of tax advantages, setting it apart as an oasis of tax efficiency and making it a vital home for entrepreneurs.
Free Zones
The UAE is renowned for its numerous ‘Free Zones,’ – economic areas where goods and services can be traded with minimal bureaucratic hindrance.
Businesses operating within these Zones are often exempt from key financial burdens like:
- Import and export tax
- Repatriation of capital and profits tax
- Corporate Tax
- Personal Income Tax
Entrepreneurs and businesses should consider these Zones as bases when looking to maximise their profits and create a tax efficient business model.
It is important to discuss Free Zones with a qualified international tax adviser to ensure your business can fully leverage the opportunities they offer.
VAT and Excise Tax
While the UAE is largely tax-free, it introduced a Value Added Tax (VAT) of five per cent in 2018.
This is considerably less than the standard VAT rate in the UK, which is 20 per cent (depending on profitability).
This tax is levied on the sale of most goods and services and is something businesses need to account for in their pricing and accounting.
Additionally, an Excise Tax is imposed on specific goods like tobacco and sugary drinks.
If your business deals in such products, you’ll need to factor this into your cost calculations and discuss their implications with a tax adviser.
Double Taxation Agreements
The UAE has Double Taxation Agreements (DTAs) with over 90 countries, including the UK, which can be a huge advantage for international businesses.
These agreements prevent the same income from being taxed in two different jurisdictions, thus reducing your overall tax liability.
However, it’s crucial to understand the specifics of these agreements as they can vary significantly from country to country.
Transparency and compliance
In recent years, the UAE has taken steps to align its tax regulations with international standards, particularly concerning transparency and anti-money laundering.
As a result, businesses are required to maintain accurate financial records and may be subject to financial audits.
Non-compliance can result in hefty fines and reputational damage.
This is seen to be a generally positive move towards more robust protection for businesses trading within the UAE and beyond.
The benefits of UAE’s tax landscape
The UAE’s tax oasis offers several benefits that can fuel your business’ development and growth, including:
- Free Zones
- The absence of Personal Income Tax
- Low Corporate Tax rates
- Low VAT
- Transparency and compliance
The UAE’s robust financial infrastructure, including its banking system, is also designed to support businesses with various financial instruments that can be leveraged for growth and expansion.
Navigating through the desert of taxes is never easy, but the experienced international tax advisers at SMCO can lead you to the most profitable tax environments available to your business.
To speak to a qualified tax professional about the financial oasis in the UAE, please get in touch.
