All you need to know about Corporate Tax for forming a business in the UAE

Corporate Tax (CT) will impact the way business is conducted in the UAE. Falling under the direct tax category, imposed on the net profit, all businesses must comply with corporate tax regulation from June 1, 2023. However, businesses that have a profit less than AED 375,000 will be charged 0%. Even though your business does not reach the qualifying income of AED 375,000 it is mandatory to register for corporate tax and file 0% tax returns.

This guide will walk you through the process and necessary procedure to set up a business either in the mainland or in the Free Zones of the United Arab Emirates.

The best way to start business preparations for the new tax regime is by inspecting your prior financial statements to determine whether your company qualifies for corporate tax. Also, analyze how your company’s commitment and liabilities under contracts with customers and suppliers may be impacted by the UAE corporate tax. It is also imperative to have a trusted accounting software that ensures accuracy and full compliance since financial reporting is highly important.

If you are about to launch a new business, in the mainland or free zones keep these important points in mind:

• Any business that exceeds the profit threshold of AED 375,000 is liable to pay CT and register for the same.

• CT is applied on all commercial activities you plan to conduct, administered and enforced by the Federal Tax Authority (FTA).

• Income from individuals (or any passive income such as income that does not come from a trade in the UAE), will not be charged CT.

• Companies with a fiscal year from June 1, 2023, to May 31, 2024, have until February 28, 2025, a nine-month window, to file tax reports and make payments.

• Even though CT is being introduced, VAT will continue to exist and you are required to register your business for both CT and VAT.

How to set up a business in the UAE free zone

Starting a business in the UAE Free Zone is one of the most attractive options for investors, owing to the many benefits. A fully developed infrastructure, tax exemptions, and complete foreign ownership, are just a few benefits of launching a business in the Free Zone. While you need a local partner’s support to start a business in the mainland, it is not the same in the Free Zone.

A quick look into the process of setting up a company in the UAE Free Zones.

• Finalize your company’s legal structure.
• Find the right trade name and register.
• Determine the location for your business.
• Apply for all approvals.
• Register your business and obtain a valid license.

How to set up a business in the UAE mainland

Unlike registering in the Free Zones, the process to register your company in the mainland involves a few more steps. When the new regime comes into effect, the following rates will apply:

Steps to set up a company in the mainland, UAE.

• Finalize your company’s legal structure.
• Find the right trade name and register.
• Apply for all approvals.
• Attain a Memorandum of Association (MOA) or local service agent agreement (LSA).
• Determine the location for your business.
• Apply for all the necessary government approvals.
• Submit all required proofs.
• Receive your license and register with the Chamber of Commerce and Industry.

1. Finalize your company’s legal structure.

Before you start your company’s registration in the UAE, choose the right business structure. To get started, you can choose the Limited Liability Company (LLC) structure; as it allows you to benefit from UAE’s local economy. If you are an expatriate, you can have full ownership of your business in the mainland. In case you are looking for support, or if you are trying to simplify the process of setting up a business in the area, you can choose to work with a local service agent (LSA). The agent will assist in getting the required licenses and approvals without having any ownership in your company.

2. Find right trade name and register.

Once you choose a legal structure for your company, find a suitable name and register it. Unlike a lot of countries that have minimal rules and regulations for company names, UAE has very strict rules and stringent restrictions for trade name registration. You can submit an application for a distinctive trade name for your business to the Department of Economic Development in the emirate of your choice online, via the smart application, or in person. These are some key guidelines that you need to be aware of:

• The name should not have religious connotations, offensive words, or expressions. If a person’s first name is of Arabic origin and pertains to one of the proposed shareholders, it may be used.

• If the suggested name is registered or protected locally, the following documentation must be provided: No Objection Certificate (NOC), Commercial License Copy, Share Certificate, Valid Franchise Agreement, and similar documents (check with a professional for specific guidance).

• Nationalities, such as “European, African, Italian, etc.,” can be used in the business name; names of continents, countries, and cities are not permitted.

• Companies have the option of adding an operating name, which allows them to use their brand or short name while also making the name it legitimate.

• No government initiatives or active local or international brands (such as Pepsi, Emaar, McDonald’s, etc.) should appear entirely or in part in the name.

3. Apply for essential approvals.

The Ministry of the UAE takes several matters into account when you express interest in starting a business in the UAE. This will include the legal structure of your company, the kinds of economic activities you desire to conduct, and the license parties (partners) involved. Here’s an overview of how to apply for essential approvals.

• Login to: https://invest.dubai.ae
• Select your main business activity.
• Add your license parties and their nationalities.
• Select your company’s legal form.
• Select your license type.
• Add more details about your license.
• Add the details of your partners.
• Add Ultimate Beneficiary owners.
• Confirm all of your details.
• Make the payment.
• Print the Initial Approval Certificate once it is ready.

4. Get an MOA or Local Service Agent agreement (LSA).

Ideally, the MOA (Memorandum of Association) has details about your business including the company’s name, the shareholders’ names, the amount of shares each of them own, and the location of your registered office. Besides these, it elaborates on your company’s objectives, your legal share capital, your partners’ or members’ rightness as investors or personal guarantees, as well as the kinds of contracts your business may enter into. Depending on the legal status of your company, be it a limited liability company, private shareholding company, public shareholding company, or civil company, a Memorandum of Association (MOA) is necessary. If it is a sole proprietorship, a local service agent agreement (LSA) is necessary.

5. Find the best location for your business.

When you try to set up a company in the UAE, it is important to have a physical address. Apart from that, your company must strictly follow the rules and regulations set by the emirate’s Department of Economic Development, the respective zones, and other relevant authorities. If you choose to be a tenant in the UAE, you must register your lease agreements for office or warehouse space in the UAE Land Department’s Ejari site. Here’s a quick checklist to simplify your process:

• Do you have enough chances to grow your business?
• What is the final cost and what will it include?
• Will the demographics of the chosen area favor your venture?
• Is there enough competition for your business?
• Are you fully aware of the regulations the local governing bodies have?
• Will it be easy for logistics and accessibility?
• What does the entire process of setting up a company look like?

6. Apply for additional government approvals.

Besides the regular approvals, further approvals may be necessary for particular company projects in the transportation, legal, engineering, telecommunications, travel, tourist, insurance, and health sectors.

For instance, if you require approvals for common transport activities which include establishing a driving school, dealing with used cars, used auto parts, or car rentals, reach out to the Ministry of Interior. If you are planning to establish a business related to architectural and engineering affairs, then it is best to approach the local municipal department.

If your business is related to onshore and offshore gas services or oil drilling operations, it is ideal to approach the Supreme Petroleum Council.

7. Submit all required proofs.

Once all of your previous steps are complete, you will have to provide a receipt of your initial approval and photo copies of all previously submitted documents while the registration process moves forward. Along with those, submit a copy of your company’s lease contract, an agreement between the property owner and the person renting the property. You may also have to submit a Memorandum of Association, a legal document outlining the company’s fundamental operating conditions, if required. Lastly, include approvals from other government entities relevant to your business type. These requirements may vary depending on your company’s nature, so consult the MOEC website or contact them for specific guidance.

8. Receive license and register with the Chamber Commerce.

Once you register your company and receive your license, the UAE will prompt you to register with the Chamber of Commerce and Industry within the same emirate. For this, you will have to provide documents such as the proof of your company’s name, the legal structure, details of your shareholders, the nature of your business activities, and finally your registered address. However, remember that the registration process may not be the same across all the Chambers, so it is important to consult with your specific Chamber before beginning.

When you register your business with these chambers, you gain access to a platform to interact with other businesses, exchange information, and collaborate. You also receive different services and professional development programs such as business networking events, trade shows, seminars, and training programs.

What’s next?

Launching a business in the UAE is an exciting endeavor for both local and foreign businesses. However, it is imperative to understand the Corporate Tax structure and be fully compliant with the requirements.

The UAE offers diverse opportunities for businesses to thrive, whether you choose to establish your company in the mainland or in one of the many Free Zones. If you follow the steps outlined in this guide and stay updated with the regulations, you can navigate the process smoothly and set up a thriving business in the UAE. Keep in mind that it is best to consult professionals or relevant authorities to get specific guidance, as requirements may change depending on the nature of your business.