Offshore Zones are countries or territories that differ in tax attractiveness for international business. The most favorable conditions are created for foreign entrepreneurs: they reduce taxes to a minimum or completely cancel them, guarantee confidentiality and asset protection, exempt from reporting, and do not require an audit. A foreign company that has registered in such countries (territories) is called an offshore (Offshore Zone Company). The main purpose of creating such an enterprise is capital management and the legal reduction or cancellation of tax payments.
Offshore company in the UAE: what is that?
The United Arab Emirates is, if not the best, then one of the most attractive countries for business registration. Several dozen free economic zones have been created here with partial or complete absence of taxes, a high level of confidentiality and protection of assets. Some local jurisdictions, such as Ajman, do not exchange tax information with a number of countries, including Russia, which increases the level of confidentiality.
The companies registered here enjoy a high reputation, unlike similar ones opened in the Virgin Islands, in the Dominican Republic, even in Cyprus and in some other European countries. Investors from any country are willing to cooperate with offshore companies in the UAE.
Offshore business registered in the UAE is most suitable for enterprises engaged in logistics, import-export business, international trade, consulting, sea transportation, delivery.
A foreign company cannot directly interact with the authorities and have its own registration address. All administrative issues, including the renewal of registration and the payment of relevant fees, are resolved through an intermediary – a registered agent representing the interests of the company or its shareholders. The agent’s registration address automatically becomes the address of the offshore company.
- Legitimate tax savings (full or partial exemption).
- Free access to the world market.
- There are no requirements for the number of shareholders, the presence of an office, the presence of authorized capital.
- Small expenses related to the creation and maintenance of the company.
- 100% foreign ownership.
- Strategic locations for various industries.
- Easy transfer of shares.
- The opportunity to work with banks that have an impeccable reputation.
- No restrictions on the withdrawal of funds to the homeland.
- Availability of qualified personnel.
- In some emirates, opening a business gives the right to purchase real estate.
In addition, the Arab Emirates are different:
- stable political situation;
- friendly attitude towards foreigners (if they do not violate local laws and customs);
- constant improvement of legislation, opening up new opportunities for the development of foreign business.
- Any kind of commercial activity on the territory of the country, as well as office rental is prohibited.
- Registration of an offshore business does not give the right to obtain a resident visa.
- To register an enterprise and open a bank account, the personal presence of one of the founders is required. To do this, you will have to open a visa, which is not so easy.
- All the documents necessary to register a business and open a bank account will have to be legalized on the territory of the emirate, which is expensive.
The Arab Emirates is a country living under sharia law, which foreigners cannot ignore. Visitors are given a lot of indulgences, but the basic rules of behavior, including religious ones, should be known and observed. Some problems may arise due to the peculiarity of the local mentality: the rules of doing business in the east and in the west are very different, which may cause misunderstanding between the parties. Usually such issues are resolved through an agent.
Types of Offshore Companies in the UAE
There are three of them:
- With liability limited by shares (CLS). This means that shareholders (there may be several of them) distribute responsibility to the company among themselves in proportion to the number of shares acquired. Such enterprises are distinguished by the simplicity of corporate mechanisms, flexibility in solving administrative issues.
- With liability limited by guarantees (CLG). The participants of the enterprise guarantee the deposit of funds in case of liquidation of the company. Liability for guarantees is distributed in proportion to the specified amount. After the end of membership in the organization, the participant is financially responsible to it for another 12 months. The right of membership cannot be transferred to another participant.
- With unlimited liability (UC). Such an enterprise is an independent legal entity, has the right to own its own assets, registration with or without authorized capital. All participants are endowed with unlimited obligations to meet the shortage of assets.
Advantages of Free Zone Companies over Offshore Companies
- Investors and their dependents are eligible for an investor visa for a period of three years.
- If you choose a zone with a specialization corresponding to your business, then you can get a real office and get into an organized SEZ market with a lot of really working companies.
- You can get the status and certificate of a tax resident and connect to agreements that allow you to avoid double taxation.
Permitted and Prohibited activities for Offshore Zones
One company can develop several types of activities at once, but you need to get a separate license for each one. Offshore companies are prohibited:
- commercial operations with oil and gas;
- working with finances;
- aviation commerce;
- trading transactions with precious metals;
- media enterprises.
Permitted types of business include:
- general trade;
- business consultations;
- ownership and operations with shares of local and foreign enterprises;
- ownership of a freehold (i.e. a building together with a plot of land) property in the emirates.
Can Offshore Companies trade in the UAE and own shares of Emirati companies located in the frison?
- Companies with a commercial or industrial license can only trade within the frison or outside the country.
- Companies located in the same zone have the right to cooperate with each other, with enterprises of other FEZs or with foreign firms. Work outside the frieze, but inside the UAE is prohibited.
- Offshore companies and FEZ enterprises have the right to own shares of other companies located inside the zones, outside them, but inside the country, as well as outside the state.
How to open a bank account for Offshore Zone companies?
Opening and managing a corporate bank account is an indispensable condition for doing business. Not all local banks work with offshore companies: it is not easy to open an account here. However, owning such a deposit provides many advantages. The United Arab Emirates is a major financial hub of the world economy, in which:
- a powerful banking infrastructure has been formed, providing a wide range of opportunities;
- stable exchange rate of the national currency, which has not changed for more than two decades;
- low rates for all types of payments;
- high level of privacy;
- you can make transactions in any volume and direction (the exception is Iran).
To open an account in any bank, you will be required to:
- the original of the applicant’s passport;
- a visa and a mark of entry into the country;
- a letter of recommendation from your bank;
- any document certifying the applicant’s residential address, for example, receipts for payment of utility bills.
To open a corporate account, you will also need:
- summary of the company and its founder;
- an extract from the founder’s account for the last six months (original);
- a letter of recommendation of the established sample from the founder’s bank (original);
- the charter documents of the organization.
The account statement and the letter of recommendation must be translated into English and certified by a local notary. The procedure for opening a deposit lasts no more than three weeks.
Each bank sets its own requirements for the minimum account balance. For example, Emirates NBD Bank, the leader of the local banking sector, requires 50,000 dirhams, which corresponds to about 13,700 US dollars, Emirates NBD Bank – 20,000 dirhams (5,970 dollars), ADIB Bank – 25,000 dirhams (6,850 dollars).
When opening a corporate account, the founder must be present in person. If further communication with the bank will become the duties of the attorney, then this person must also be present at the opening and personally sign the documents.
Choosing a bank in the UAE Offshore Zone
You can open an account in a local bank, in a branch of a foreign bank located in the country, or in a bank located in another country. Any option is suitable for conducting offshore business. But the most reliable is a deposit in a local bank that does not have a presence in the countries of the European Union. This condition will reliably protect your deposits from pressure from the EU. Foreign banks record transactions to the European Union and can exchange information, which reduces confidentiality.
Confidentiality of Beneficial Owners in the UAE Offshore Zone
Most banks require information about the ultimate beneficiary. For example, Jebel Ali (Dubai) is asked to present a bank recommendation of the final beneficiary. However, banks do not exchange information because there are no relevant agreements between them, so everything remains confidential. In Ras al Khaimah, the details of the ultimate beneficiaries are not required to be disclosed.
What restrictions apply to the activities of investors in the Offshore Zones of the UAE?
- According to Sharia law, any kind of gambling earnings are prohibited. These include: casinos, sweepstakes, lotteries, online games, forwards, derivatives, futures, options, one-day raids, short sales, scalping trading.
- It is prohibited to pay interest and receive it. This type of commerce is considered unfair.
- It is prohibited to receive fixed or annual income from capital.
- You can not borrow or give a loan. This contradicts the principle of Islamic finance based on shared responsibility (ownership of assets, risks of their use, profit management and loss coverage).
- Any types of entrepreneurship that do not comply with the laws of Islam and Sharia are prohibited. These include the production and sale of alcohol (i.e. it is also impossible to keep a bar or restaurant), pork food, any adult goods, as well as tobacco products and narcotic substances.
Taxation of offshore companies in the UAE
It is not for nothing that the FEZ is called a tax haven for foreigners. Here it is legally possible to develop dozens of types of commercial activities and not pay VAT, income tax, capital gains. Withholding tax (this is income tax in percentage terms, as well as in the form of royalties, dividends, which is usually withheld from non-residents residing in the country) is also not applied. Each of the fifty SEZs has its own tax legislation, they are united only by the fact that in any of them a registered offshore company is exempt from paying taxes for 15 years with the right to extend this period. Such a favorable tax regime is the main reason for the popularity of the Emirati FEZ for foreign investors.
How to choose an emirate for an offshore company in the UAE?
Each jurisdiction has its own terms of registration and work. The differences are in the terms of registration, the cost, the list of necessary documents, as well as the rights that a businessman receives together with a registration certificate or license. This is what you need to focus on when choosing an emirate or a Free-zone.
Jebel Ali Free Zone Authority (JAFZA)
This is the first offshore company operating since 1985. Its territory is located on the seashore around the port of Jebel Ali near Abu Dhabi and is part of the Emirate of Dubai. Since 2003, registration of an offshore business by individuals has been allowed here. and non-resident legal entities. The list of permitted activities is wide. The registration process is expensive, requires the personal presence of the founder, and will take at least two weeks. But it gives the right to purchase real estate and appeal to the authorities with a request for a residence permit for participants.
RAK International Corporate Centre (RAK ICC)
Ras Al Khaimah (RAK) is the fastest growing and industrialized emirate. It accounts for 26% of GDP. Business service is lower than in other areas by 25-50%. At the same time, the registration of the company gives the right to 100% foreign ownership, as well as to purchase real estate in Dubai and several other areas. The registration period is no more than 5 days, the personal presence of the founder is not required.
Ajman Free Zone (AFZ)
The Ajman Free Zone has a zero tax rate for foreign business. A registered legal entity is a full-fledged player in the global market. This is one of the few FEZS where 100% foreign ownership is allowed. Foreigners are prohibited from providing banking or insurance services, making money on Forex and opening a casino. AFZ is suitable for entrepreneurs engaged in the provision of trade, consulting, and IT services.
How to register an offshore company in the UAE: step-by-step instructions
The rules of registration, the list of required documents and conditions in each emirate and FEZ are different. However, the general scheme of actions is the same everywhere.
- Agent selection. The need to select a person who will perform intermediary functions between the offshore company and the local government was mentioned above. With this step, the legalization of any kind of foreign business in the UAE begins. The presence of a local representative with rights, knowledge of local laws and mentality will allow you to register quickly and avoid difficult situations.
- Choosing an offshore jurisdiction. Since priority areas of activity have been formed in each emirate and Free-zone, in which the most favorable conditions for the development of these areas have been created, you should choose the right one based on what you want to do.
- Choosing a name and type of activity. Come up with at least three variants of the company name, taking into account the rule that each should end with the word “Limited”. Provide options to your agent and he will reserve the one that fits best. Simultaneously with the name, it is necessary to legalize the list of activities.
- Preparation and signing of documents. Each jurisdiction has its own list of documents, but, as a rule, they require: a letter of appointment of an agent, a copy of the founder’s passport, confirmation of the company’s address, the charter. The documents must be translated into Arabic or English and certified by a local notary.
- Filing an application and obtaining a certificate of registration. When the package of documents is ready, you can apply for