Doing business guide Understanding the United Arab ’ tax position Doing business guide | Understanding the ’ tax position

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02 Doing business guide | Understanding the United Arab Emirates’ tax position

Contents

04 About the United Arab Emirates

06 Legal and regulatory framework

09 Taxation in the United Arab Emirates

20 Immigration and labor landscape

31 United Arab Emirates double tax treaty network

03 Doing business guide | Understanding the United Arab Emirates’ tax position

About the United Arab Emirates

Occupying a strategic location between The legal system in the UAE is based on The relevant laws allow the Emirates Asia, Europe and Africa, the United both civil code principles and on Islamic to establish Free Zones for general or Arab Emirates (UAE) ranks first among Shari’ah Law. The key sources of law industry-specific activities to encourage the countries most attractive to foreign include: foreign investments into the UAE. direct investment in the Middle East • The UAE Federal Constitution; (ME) and Africa region. • Federal laws and regulations; The UAE juridical system varies significantly • Emirati laws and regulations; across the different Emirates and some The UAE is a confederation of seven • Islamic Shari’ah principles; and of the Free Zones have their own court Emirates comprising of , • Free Zone regulations (as applicable). system. Free Zones are part of the UAE , , , , territory but are considered to be outside and . Formed The UAE Federal Constitution provides the the Customs territory. They are subject in 1971, the UAE’s federal authority, the basis of all legislation communicated at to Customs controls in addtion to normal , consists of the federal and national level. The federal Customs procedures, and are under the the hereditary rulers of each government has exclusive jurisdiction over General Courts (i.e. Dubai Court). who further elect a President and Vice various substantive matters. President from the existing members. The Emirates have jurisdiction over matters Arabic is the first language in the UAE, not assigned to the Federal Government, however, English is widely spoken noting that federal laws supersede any and commonly used in business local laws. transactions.

04 Doing business guide | Understanding the United Arab Emirates’ tax position

05 Doing business guide | Understanding the United Arab Emirates’ tax position

Legal and regulatory

Entering the market 2. Branch of foreign company Foreign investors interested in establishing As per the new CCL, foreign companies a formal presence in the UAE generally are allowed to establish a branch entity in The Decree Law now have two options: the UAE mainland. The branch entity does permits wholly foreign not require a local shareholder, however, 1. Establish a presence in the UAE it is mandatory for the foreign investor to owned companies mainland, i.e. one of the Emirates; or appoint a local service agent (LSA) which 2. Establish a presence in one of the many should be a UAE national or a company unless a special UAE Free Zones. owned by UAE nationals. exemption applies to

Foreign investors may also enter into a The role of the LSA is to facilitate restrict them. joint venture with a local business or do communication with the government business via an authorized distributor/ and ministries. Pursuant to Law No. 13 of agent located in the UAE. 2011 Regulating the Conduct of Economic - Popular amongst industries focused Activities, the relationship between towards trade, import and export. Mainland establishments the parent company and LSA must be • Dubai Airport Free Zone Authority The legal forms for the UAE mainland are governed by a notarized agency agreement (DAFZA) - Popular amongst the aviation governed by Federal Law No. 2 of 2015, based on the template prescribed by the and logistics industry. the Commercial Companies Law (CCL). The DED. • Dubai International Financial Center most commonly used business forms in (DIFC) - Popular amongst the financial the UAE mainland are the Limited Liability Free Zone establishments services industry. Company (LLC) or a branch/representative Establishing a business in a Free Zone • (DMC) - Popular of a foreign company. is another option available to foreign amongst the technology, media and investors. A Free Zone is a designated area telecommunication industry. 1. Limited liability company within the UAE where foreign investors • Dubai Multi Commodities Center (DMCC) As per the CCL, foreign investors may enjoy up to 100% foreign ownership as well - Popular amongst businesses engaged in own up to a maximum of 49% of the as other benefits such as import duty and the commodity trade and services sector. share capital of an entity. The remaining VAT exemptions. Free Zones have been • Abu Dhabi Global Market (ADGM) – 51% must be held by a UAE national established to attract foreign investments Popular amongst the financial services shareholder or company wholly owned into the UAE. industry. by UAE nationals. Generally, LLCs are not • Khalifa Industrial Zone Abu Dhabi (KIZAD) subject to any minimum share capital There are over 40 Free Zones in the UAE, – Popular amongst industrial services. requirement, however this is at the each administered by its own rules and • Hamriyah Free Zone (HFZ) – Popular discretion of the Department of Economic regulations and authorities which are amongst logistics and trading companies. Development (DED) and in most cases they responsible for licensing and registration • Ras Al Khaimah Free Trade Zone (RAKFTZ) require investors to inject a paid-up capital matters in relation to foreign entities • Ajman Free Zone (AFZ) of AED 300,000. looking to establish their business in the • Fujairah Free Zone (FFZ) given Free Zone. Free Zones in the UAE The last three Free Zones are generalist The recently issued Decree Law No. 26 of have typically been established in order with core focus on trading, manufacturing 2020 contains significant changes to the to accommodate specific industries. For and logistics. the CCL. Specifically, the Decree Law now example, there are dedicated Free Zones permits wholly foreign owned companies in Dubai focusing on companies from the Investors looking to establish a business unless a special exemption applies to technology, media, finance, and import/ in one of the several Free Zones in the restrict them. export industries. UAE have to choose between a Free Zone Company (FZCO) and Free Zone Some of the most popular Free Zones in Establishment (FZE). These two company the UAE are: structures are distinctive from one another • Free Zone Authority (JAFZA) in terms of capital requirements and the number of shareholders permitted.

06 Doing business guide | Understanding the United Arab Emirates’ tax position

High-level entity set-up comparison in mainland vs. Free Zones

Mainland Free Zones

Department of Economic Registration authority and Development (DED); additional The relevant Free Zone authority (note that there are more than 40 Free Zones in the approvals approvals from other authorities UAE); additional approvals from other authorities may be required may be required

Private/public joint stock company; Type of legal entity FZE (single shareholder); FZCO (multiple shareholders); branch of a foreign company LLC; branch of a foreign company

Audit requirement Accounts need to be audited Accounts generally need to be audited

Generally, around 3-4 months to set- Timeline for set-up (LLC) Generally around 2-3 months depending on the Free Zone up (from receipt of all documents)

In principle 51% local shareholding Foreign ownership restrictions required; however, exceptions are 100% foreign ownership possible possible

Minimum shareholders At least 2 shareholders 1 shareholder possible

In practice, generally around AED Share capital requirements typically vary from AED 50,000 to AED 1,000,000 Minimum share capital 150-300k (depending on Emirate (depending on the Free Zone, activity, etc.) and activity)

The required minimum office space No minimum square feet requirement, but minimal set-up required (flexi desk Physical office is 200 square feet solution); details depend on Free Zone

Free Zone companies can only operate within the Free Zone; carrying out business Conduct of business Generally no restriction operations in mainland UAE is not permitted

Offshore establishments legalization of required documents (as A handful of Free Zones such as JAFZA required) with the Ministry of Foreign and RAKFTZ permit foreign investors to Affairs and Ministry of Justice in the UAE UAE offshore establish offshore entities that may act 7. Apply for initial approval from the DED companies are as a holding company within their group 8. Open a bank account structure and are further not permitted 9. Deposit the share capital into the bank governed by the to perform any activities in the UAE (Free account relevant Free Zone’s Zone or mainland). These legal vehicles, 10. Prepare expand to memorandum however, are allowed to own freehold of association (MoA) and partnership offshore regulatory property within the UAE jurisdiction. UAE agreement offshore companies are governed by the 11. Establish business location laws and regulations. relevant Free Zone’s offshore regulatory 12. Obtain final approval from the DED laws and regulations. 13. Obtain commercial license 14. Register with the Chambers of Formation procedures and registration Commerce The steps to establish an LLC in the UAE 15. Register with the Ministry of Labor and are generally as follows: Immigration 16. Registration with the Municipality 1. Decide on the business activity 17. Registration with the Civil Defense 2. Determine the trade name 3. Prepare required documents Please note that the above refers to the 4. Ensure attestation and legalization of procedures at the time of this guide's required documents (as required) with the publication and might be subject to UAE Embassy in the country of origin variations when the process is initiated 5. Provide legal/official translation of in the future. In addition, there may be required documents (as required) variations to the above steps in case of 6. Ensure counter attestation and Free Zones (depending on the exact Free Zone).

07 Doing business guide | Understanding the United Arab Emirates’ tax position

Below we have set out an initial list of • Business plan; Please note that the above refers to an documents typically requested by the • Office lease agreement; indicative list and might be subject to UAE authorities for company registration • Passport copy of the manager to be variations at the time of application. purposes: appointed for the new company; and • Attested and legalized resolution from the • Letter of authorization for a third party A license will then be issued by the parent company to set up a subsidiary in to submit documents to the authority on Department of Economic Development the UAE; behalf of the parent company. or the Municipality or the Chamber • Attested and legalized certificate of of Commerce of the relevant Emirate. incorporation/trade license of the parent The documents of the parent company The process of registering in Dubai, for company; should be attested and legalized with the example, is estimated to take about six • Passport copy of the directors of the UAE Embassy and Ministry of Foreign to eight weeks from the date of initial parent company; Affairs in the country of origin and counter application, provided all documentation is • Attested and legalized memorandum attested with the Ministry of Foreign Affairs in place and that there are no extraordinary and articles of association of the parent in the UAE. The documents would also company; need to be legally translated in Arabic and • Copy of the last financial statements of attested by the Ministry of Justice in the the parent company; UAE.

08 Doing business guide | Understanding the United Arab Emirates’ tax position

Taxation in the United Arab Emirates

Overview Taxation of oil and gas companies Details of such fiscal regimes are not There is currently no federal tax code in the Taxable oil and gas companies are taxed publicly available, however, the regime UAE, although most, if not all, of the seven under the specific terms of the concession usually involves a mixture of payment of Emirates have issued local tax decrees. agreements or fiscal letters signed with royalties and income tax. The Emirati-level decrees are usually not the government. The fiscal terms under very detailed, but prescribe the basis for such agreements generally supersede the Under the agreements, the tax rates taxation in the relevant Emirate, including, provisions of the Emirati tax decrees, and typically range up to 85%, and royalty rates inter alia, definitions of a taxable person this is typically stipulated in the wording of range between 12-20%, depending on the and taxable income. However, in practice, the concession agreement. levels of production. the decrees are currently only enforced in respect of oil and gas exploration The concession agreements or fiscal letters The competent authority for the regulation and production companies, and certain are the principal tax legislations for oil and of the oil and gas industry, grant of petrochemical companies, under specific gas companies in the UAE (apart from any concessions and collection of taxes under government concession agreements (see VAT obligations). Generally, all matters not the concession agreements or fiscal ‘Taxation of oil and gas companies’ below). specifically mentioned in the concession letters is the government of the respective agreement or fiscal letter should follow Emirate. Branches of foreign banks are subject the provisions of the relevant Emirate's tax to corporate income tax under separate decree. banking decrees in certain Emirates. The terms of the concession agreements or Whilst corporate taxes are levied on fiscal letters are specific and determine the companies operating in certain industries tax base, the applicable tax rate, relevant in the UAE, entities registered in the Free due dates and filing deadlines, and to Zones are generally not liable to corporate whom the tax is paid. income tax for a specific period depending on the Free Zone, i.e. Free Zone entities are typically offered a 15-50 year ‘tax holiday’. Taxable oil and gas companies are There is ongoing speculation regarding the potential future introduction of corporate taxed under the specific terms of the income tax in the UAE, however, the concession agreements or fiscal letters introduction remains uncertain. signed with the government. The UAE Federal Tax Authority (FTA) was established in 2016 by Federal Decree and is the government entity responsible for the collection and management of federal taxes in the UAE, including value added tax (VAT) and excise taxes.

Customs duties are managed within each Emirate of the UAE by local Customs authorities, coordinated by the Federal Customs Authority.

09 Doing business guide | Understanding the United Arab Emirates’ tax position

Taxation of branches of foreign banks Residence Copies of the below documents are Branches of foreign/international banks are Due to the lack of corporate income tax, required as part of the application: subject to income tax in the Emirate where and as Emirate-level income tax decrees do they are established and operate. Certain not contain specific provisions in relation to • Valid trade license; Emirates including Dubai and Abu Dhabi corporate tax residency, there is currently • Establishment contract certified by have issued special banking decrees or no clear legal and domestic concept of the relevant authority (e.g. articles of banking tax regulations (Regulations). The corporate tax residency in the UAE. association, memorandum of association, Regulations are broadly similar and share etc.); the following key characteristics: Nevertheless, the Federal Tax Authority • Passport, UAE residence visa and (FTA) does issue Tax Residency/Domicile Emirates ID of the authorized signatory • The taxable income of foreign banks is Certificates (TRC) to companies that are mentioned on the trade license; typically subject to tax at 20%; incorporated in and are managed from • Most recent certified audited financial • The taxable profit is determined based on the UAE and meet the requirements set by statements (stamped and signed by a local the audited branch accounts and subject (1) the FTA and (2) a pertinent double tax auditor); to the adjustments as prescribed by the treaty (DTT). • Certified bank statements from a local Regulations; UAE bank for the 6 most recent months • The Regulations contain a number of A UAE TRC may be required from the (stamped by the bank); provisions dealing with the allocation/ perspective of the reciprocal jurisdiction • Tenancy contract/title deed for any attribution of revenue as well as expenses1 in order to benefit from the provisions of business premises in the UAE (flexi-desk to the branch and expense deductibility a DTT. option may not be sufficient); and rules2; • Template of the tax residency certificate • The Regulations further contain specific 1. Assessing corporate tax residency as prescribed by the foreign tax authority guidance regarding accruals/provisions, The UAE/FTA has developed quite a (optional). depreciation of bankable assets and the stringent domestic unilateral anti-abuse • Proof of authorization document for the carry forward of tax losses; practice. The practice applies for the authorized signatory. • The Regulations provide for procedural/ applicable TRCs. The assessment of the • Tax registration number and VAT administrative rules (e.g. filing deadline, late tax residency is primarily performed registered email address (applicable only payment interest and penalties in case of under the aspect of business/economic for VAT registered companies). non-compliance, payment of income tax substance (ES). As part of the process, the and the appeal process). applicant is required to provide various Companies established under offshore documents. The criteria and requirements regulations and UAE branches of foreign The central competent authority for are considered comprehensive and may be companies are generally not eligible overseeing the tax affairs and collection subject to change when factoring in global to obtain a TRC in the UAE. Free Zone of taxes is the Ruler’s Commissary or the trends. companies can apply for a TRC from Department of Finance of each Emirate. the MOF on the basis of an existing 2. Conditions and documentation agreement concluded between the MOF requirements and the Free Zone in question (a so-called The most important requirement is memorandum of understanding). We note that the company should have been in that most Free Zones in the UAE do have existence and operational for at least one such an agreement in place. year from the issue date of the company’s trade license.

1For example, the Regulations provide that the branch shall bear regional and shared expenses according to the ratio of its asset to the total assets of the operating branches.

2For instance, the deductibility of the total of the head office expenses and the regional management expenses is capped at 2.5% of the branch’s revenue.

10 Doing business guide | Understanding the United Arab Emirates’ tax position

Withholding taxes (WHT) Tax incentives There are no withholding taxes in the UAE The UAE has established several free under current legislation. trade zones which offer benefits including: There are no withholding (renewable) 15-50 year tax holidays, taxes in the UAE under Capital gains no restrictions on foreign ownership, current legislation. Capital gains are not taxable, unless no restrictions on capital and profit derived by a company that is taxable repatriation, and an exemption from under any of the income tax or banking tax import duties on goods brought into the decrees. zone.

11 Doing business guide | Understanding the United Arab Emirates’ tax position

Transfer Pricing Foreign income and tax treaties There is currently no transfer pricing (TP) The UAE has concluded around 128 double legislation in the UAE. However, related It is recommended that taxation treaties of which around 90 are party transactions should be made at arm’s ME-based businesses keep already in force. The in-force DTTs include length to mitigate any risk of TP issues Algeria, Comoro Islands, Egypt, Guinea, arising in the reciprocal jurisdiction. documentation in place in Kenya, Mauritius, Morocco, Mozambique, line with the Organization Saudi Arabia, Senegal, Seychelles, South The recently issued UAE VAT Law contains Africa, Sudan, Tunisia, Jordan, Lebanon, a definition of related parties, which are for Economic Co-operation Syria, Yemen, Azerbaijan, Kazakhstan, defined as two or more persons not and Development (OECD) Kyrgyzstan, Turkmenistan, Tajikistan, separated on an economic, financial or Uzbekistan, Armenia, Bangladesh, Brunei, regulatory level, where one can control guidelines and industry China (PRC), Georgia, Hong Kong, India, the others either by law, or through the best practices. Indonesia, Japan, Korea (Rep.), Malaysia, acquisition of shares or voting rights. Maldives, Pakistan, Philippines, Singapore, Against this background, it is advisable Sri Lanka, Thailand, Vietnam, Albania, for intercompany transactions to be Andorra, Belarus, Belgium, Bosnia and Country-by-country reporting performed at arm’s length. It has Herzegovina, Bulgaria, Croatia, Cyprus, The UAE recently introduced country-by- been noticed that the FTA requests TP Czech Republic, Estonia, Finland, France, country (CbC) reporting. The CbC reporting documentation during VAT audits to ensure Germany, Greece, Hungary, Ireland, Italy, rules has taken effect for financial years the basis on which the VAT rate is applied is Jersey, Kosovo, Latvia, Liechtenstein, commencing on or after 1 January 2019. at arm’s length in an intragroup context. Lithuania, Luxembourg, Macedonia, Malta, Moldova, Montenegro, Netherlands, The rules will generally apply if the It is also important to mention that the Poland, Portugal, Romania, Russia, Serbia, consolidated group revenue is at least Gulf Cooperation Council (GCC) Common Slovakia, Slovenia, Spain, Switzerland, AED 3.15 billion in the financial year Custom Law contains a definition of Ukraine, Turkey, United Kingdom, immediately preceding the reporting related parties which is similar to the Barbados, Canada, Mexico, Panama, period (i.e. FY18). The CbC report must be one mentioned above. Consequently, Uruguay, Venezuela, Fiji and New Zealand. submitted within 12 months of the end of intragroup transactions and related TP the reporting period, and non-compliance could be challenged by the Customs Furthermore, the UAE joined the OECD could result in penalties of up to Authorities, which would ensure that the Inclusive Framework on Base Erosion and AED 2,250,000. Multinational enterprise custom value declared for duty proposed Profit Shifting (BEPS) on May 2018 and (MNE) groups headquartered outside of is in line with the TP value disclosed in TP signed the OECD Multilateral Convention to the UAE are no longer required to submit documentation. Implement Tax Treaty Related Measures to CbC notifications with the MoF for their prevent BEPS (MLI) on 27 June 2018. UAE constituent entities. There are several indicators that point towards the introduction of new taxes in the UAE such as an income tax. We would expect that the implementation of such a tax would come along with TP rules. As best practice, it is recommended that ME-based businesses keep documentation in place in line with the Organization for Economic Co-operation and Development (OECD) guidelines and industry best practices.

12 Doing business guide | Understanding the United Arab Emirates’ tax position

Stamp duty Economic substance rules 2. The ‘core income generating There are currently no stamp duties On 10 August 2020, the UAE Cabinet issued activities (CIGA)’ test: The entity that levied in the UAE. Registration/notary or the Cabinet of Ministers Resolution No. 57 performs any of the relevant activities attestation fees, as are common in most of 2020 concerning Economic Substance for the purpose of the ESR will need to other jurisdictions, however, there may Regulations (ESR). UAE onshore and demonstrate that the relevant CIGAs have be registration/notary or attestation fees Free Zone entities that carry on specific been undertaken in the UAE. The criteria upon incorporation of a company. activities mentioned in the rules will have to for the CIGA test vary depending on the meet ES requirements, as failure to do so relevant activity in question. Certain Free Zones may levy an could trigger penalties. administrative fee for a transfer of shares 3. The ‘adequate’ test: The entity will to other UAE companies. The ESR foresees specific substance need to have an adequate number of requirements (economic substance qualified employees in the UAE, incur Real estate transfer fees tests) on entities that fall within its scope. adequate expenditure in the jurisdiction There are currently no property taxes Broadly speaking, there is a two-step test and have an adequate physical presence applicable in the UAE. However, a to determine the applicability of the UAE in the country. The applicability of the registration/transfer fee is levied on the ES requirements i.e. the entity is a relevant ‘adequate’ test will be dependent on the direct and, in specific circumstances, entity and the entity carries out a relevant particular facts and should vary on a case indirect transfer of real property (e.g. a activity in the UAE. by case basis. transfer of shares in a company holding real estate). This fee is also levied on partial A relevant entity is any entity, including a In order to meet the ES tests, each of the transfers under certain circumstances. branch, that is licensed by a competent above must be satisfied for the entire authority to carry out a relevant activity relevant period. The rate varies according to the Emirate either onshore on in a UAE Free Zone. in which the property is situated. For Companies covered by the ES rules will be the Emirate of Dubai, the rate is 4%, Any of the following nine activities should subject to the following two compliance/ borne equally by the buyer and the seller be considered as a relevant activity as reporting requirements: (although in practice, the buyer is generally per the ESR: banking business; insurance responsible for paying the transfer fee). business; fund management business; 1. Notification; and financing and leasing; shipping business; 2. Report submission. It is worth noting that the purchase of any headquarters business; holding company property in the UAE is generally restricted business; intellectual property holding Non-compliance could result in to UAE/GCC nationals only (foreign business; and distribution and service financial penalties as well as exchange ownership may be possible if the property center business. of information with the shareholder’s is within the designated areas of the UAE). jurisdiction (this is potentially up to the Under the ESR, licensed entities beneficial owner) and suspension/non- Municipal charges undertaking any of the relevant activities renewal of a trade license. In the case of property rentals, certain listed above and deriving income therefrom Emirates charge a municipality fee on the are required to comply with the following annual rental value of the property, which three ES tests: varies according to the Emirate in which the property is situated. For the Emirate 1. The ‘directed and managed test’: of Dubai, a municipality fee of 10% is The entity will need to be directed and levied on commercial properties (5% for managed in the UAE with regards to the residential properties). The fee is included relevant activity (for example: frequent proportionally in the monthly utility bills for board meetings, quorum of directors the property. physically present, minutes of all board meetings kept in the country, etc.). Municipal charges are also imposed on certain hotel and leisure services.

13 Doing business guide | Understanding the United Arab Emirates’ tax position

Value added tax The GCC framework agreement and UAE Certain supplies may qualify for either Introduction national VAT legislation sets out specific VAT zero-rating or exemption under the UAE The UAE introduced VAT with a standard rules for supplies between GCC member national legislation (refer to Table 1). Zero rate of 5% from 1 January 2018. This states. However, the UAE has elected not rated supplies have a VAT rate of 0% and followed agreement from the seven to implement these provisions until VAT are treated as taxable supplies in all other member states of the Gulf Cooperation is implemented more broadly across the respects, including the right to recover VAT Council for the Arab States to implement GCC. As such, other GCC member states incurred on expenditure. Exempt supplies VAT in accordance with the GCC VAT are currently treated in the same way as do not require VAT to be accounted for, framework agreement, which sets out the non-GCC countries for VAT purposes in the however, VAT incurred on expenditure is principles of the GCC regional VAT regime. UAE. restricted.

The UAE has a range of legislation Rates governing VAT, but the primary sources of VAT is applicable on taxable supplies of national law are the Federal Decree-Law goods and services in the UAE, and imports No. 8 of 2017, Cabinet Decision No. 52 of of goods into the UAE from outside of the 2017 and Cabinet Decision No. 46 of 2020. GCC (and from GCC member states for an interim period), with limited exceptions.

Table 1: Overview of supplies not subject to the standard rate of VAT

Type of supply VAT treatment

Qualifying exports of goods or services Zero

International transport of passengers and goods, including some related Zero goods and services

Qualifying means of transport, and certain goods and services supplied for Zero their operation, repair, maintenance or conversion

Aircraft or vessels designated for rescue and assistance Zero

Certain investment precious metals Zero

The first qualifying supply of a new residential building (or converted from non-residential to residential building) or a building specifically designed to Zero be used by charities

Crude oil and natural gas Zero

Qualifying educational services and related goods and services Zero

Preventive and basic healthcare services and related goods and services Zero

Qualifying financial services Exempt

Residential buildings not qualifying for the zero rate Exempt

Bare land Exempt

Local passenger transport Exempt

14 Doing business guide | Understanding the United Arab Emirates’ tax position

Registration and VAT administration Returns must be filed online via the FTA’s The primary sources of legislation for VAT registration is mandatory for taxable e-Services portal by the 28th day (or Excise tax in the UAE are the Federal persons who are residents in the UAE next working day if the 28th day falls on a Decree-Law No. 7 of 2017, Cabinet Decision that make taxable supplies exceeding weekend or national holiday) of the month No. 37 of 2017, Cabinet Decision No. 38 AED 375,000 over the previous 12-month following the end of the reporting period. of 2017, Cabinet Decision No. 42 of 2018, period or that are expected to exceed Any VAT payable for the reporting period is Cabinet Decision No. 52 of 2018, Cabinet AED 375,000 within the next 30 days. due on the return filing date and payments Decision No. 55 of 2018, Ministerial A supplier that solely makes zero-rated are generally made online via the e-Dirham Decision No. 236 of 2019, and Ministerial supplies may submit an application for an website or by bank transfer. Decision No. 237 of 2019. exemption from mandatory registration. Valid tax invoices must be issued for A resident business may voluntarily register all taxable supplies, showing a range of VAT registration is for VAT if its taxable supplies (or expenses) mandatory information. exceed or are expected to exceed the mandatory for taxable voluntary registration threshold of Any VAT deduction requires the purchaser persons resident in the AED 187,500. to hold a copy of a valid tax invoice issued by the supplier. Deductions of VAT are not UAE that make taxable No threshold applies to non residents. permitted for non-business expenses and supplies exceeding Non residents will be required to register certain purchases are specifically excluded AED 375,000 over the for VAT to remit any tax payable by them from recovery, such as entertainment, on supplies in the UAE regardless of value. catering, and purchase or expenditure on previous 12-month period A broad reverse charge mechanism is set motor cars for private use. or that are expected to out within the UAE VAT legislation, allowing resident taxpayers to account for VAT Taxpayers are expected to retain the exceed AED 375,000 within payable on supplies received from non relevant VAT, accounting, and other records the next 30 days. residents in certain cases, which has the to support the data entered on the VAT effect of reducing the instances of non- return for a period no less than five years resident VAT registration in the UAE. from the end of the relevant tax period, and 15 years for activities relating to real It is possible to register as a tax group in estate. The FTA may increase these time the UAE and be treated as a single taxable limits by a further four years in certain person for VAT purposes. Two or more circumstances. entities may apply to be grouped where they have establishments in the UAE Excise tax and the relevant ownership and control Overview requirements are met. A framework agreement between the seven member states of the GCC sets out Once registered, taxpayers will be the principles of the Excise tax regime required to calculate the net VAT due and at a regional level. Consistent with this declare this on a VAT return. VAT returns agreement, the UAE imposes Excise tax are generally required on a monthly or on the importation, production, and quarterly basis depending on turnover, but stockpiling of tobacco, electronic smoking the FTA may specify a longer or shorter devices and associated liquids, carbonated period if it considers that to be appropriate. drinks, sweetened drinks, and drinks.

15 Doing business guide | Understanding the United Arab Emirates’ tax position

Rates and compliance Excise tax registrants must file the relevant Currently, designated Excise goods are Excise tax in the UAE is currently applied declarations in respect of their Excise tobacco and tobacco products and on the following product types: carbonated operations. The declarations are reflected the digital tax stamps scheme is being drinks (50% rate), sweetened drinks in the Excise tax return, and submission introduced on specified products within (50% rate), energy drinks (100% rate), of returns is required each calendar this category on a phased basis. tobacco and tobacco products (100% month; however, a longer tax period may rate), electronic smoking devices and tools be agreed directly with the FTA in certain Designated zones (100% rate), and liquids used in electronic circumstances. The due date for filing the A designated zone in accordance with the smoking devices and tools (100% rate). Excise tax return is no later than the 15th Excise tax law is an area which is treated day of the calendar month following the as being outside the territory of the UAE Excise tax is chargeable by reference to end of the tax period. The Excise tax return for the purposes of Excise tax. Goods the tax base of the goods concerned. The is required to be submitted online to the entering the UAE which are immediately tax base is either the designated retail FTA. and appropriately moved to a designated price of the goods, a minimum price set by zone are not treated as imported into the regulation, or a list price determined and UAE at that time. published by the FTA. Goods entering the UAE Excise tax is due when goods are released Excise tax registration is required for which are immediately and from a designated zone for consumption in anyone who imports, produces, or appropriately moved to a the UAE. stockpiles excisable goods in the UAE, or designated zone are not releases excisable goods from designated Digital tax stamps zones for consumption in the UAE. There is treated as imported into Digital tax stamp marking and encoding no threshold limit, and any person involved the UAE at that time. allows for product traceability from the or forming the intention to be involved in point of manufacture through to the final excisable activities must notify the FTA point of distribution. within 30 days of the end of the month in which they were involved or formed the Importers of Excise goods that are not The digital tax stamps scheme in the intention to be involved. There are specific entered into an approved warehousing UAE requires manufacturers and other limited exceptions to registration, including arrangement will be required to pay Excise specified parties in the supply chain to qualifying infrequent importations of Excise tax upon importation to the Customs comply with physical stamping and control goods. Authorities. requirements for the importation and trading of certain designated Excise goods in the UAE.

16 Doing business guide | Understanding the United Arab Emirates’ tax position

Customs duty The documents required for all commercial Customs trends and areas of focus in The UAE is a member of Trade shipments into the UAE, irrespective of the UAE Organization (WTO), and is a contracting value or mode of transportation, are • There appears to be a significant party to the World Trade Organization’s generally: onslaught of post clearance audits (PCAs) revised Kyoto Convention, the primary • Commercial invoice; initiated by Customs authorities in the agreement in respect of global Customs • Certificate of origin; UAE in recent years to check Customs and administration and procedures. At a • Bill of lading (or airway bill); global trade compliance among economic regional level, the UAE and other GCC • Steamship (airlines) company certificate; operators. The focus of these audits tends countries are unified through a common • Insurance certificate (if goods are insured to be around accurate documentation Customs law, implementing procedures, by the exporter); to support duty reliefs sought, and a common Customs tariff (although it • Packing list; and validation of valuation methodologies is noted that there may be differences in • Vendor or bank guarantee. and Customs values used for Customs implementation between member states). declaration purposes, classification codes Depending on the nature of goods being determination and applied origins, among In addition to the agreements between shipped, and whether goods are restricted others. Particular focus has been on GCC member states, the UAE is part of or require a specific import permit, a operators and businesses in Free Zones/ the Greater Arab Free Trade Area and a specific approval, a separate notification designated zones around the reconciliation range of bilateral and multilateral free and approval process from the relevant of documentation and inventory within trade agreements are in place or are being ministry may be necessary. Free Zones. negotiated. Within the UAE, there are a number of Free Zones established which Understanding the fundamental • The Customs authorities in the UAE allows for the suspension of Customs duty Customs drivers (Dubai and Abu Dhabi alike) have been (as well as designated Free Zones and In addition to complying with Customs promoting the Authorized Economic limited VAT relief). reporting and notification requirements, Operator (AEO) certification. AEO is a trade to understand the level of Customs duty securitization program aimed at enhancing Customs duty is generally calculated exposure, it is important to understand the the relationship of Customs authorities and on the cost, insurance and freight (CIF) following three areas: businesses. AEO certified businesses reap value of imported goods, when goods are • Classification of goods: how goods are several benefits including faster clearance ‘sold for export’. It is payable at the time classified and whether harmonized system times and reduced guarantees, among of importation. Customs duty rates are (HTS) codes used for Customs declaration others. generally free or 5%, but may be higher on are in order; certain products in the UAE. • Origin of goods: where the goods are • Many businesses and facilities continue imported from and if any free trade to apply for the industrial exemption Usually the importer of record and/or the agreement benefits can be availed; and program, which allows duty free import of declarant is the entity that declares the • Valuation of goods: what is the value goods when the importer has an industrial goods for import or export purposes when of the goods being imported? This will exemption in place. Obtaining such an goods are declared at the UAE border for therefore form a basis of the duty bill exemption and ongoing compliance in this movement into or out of the country. Even calculation. respect continues to be an area of focus for if a Customs broker is in place, subject to both businesses and Customs authorities contractual arrangements, the owner of Some consideration should also be given to in the UAE. the goods and/or consignee may be held operational and regulatory issues that arise liable for the duty and related compliance from non-fiscal Customs affairs, particularly obligations. As such, careful consideration export controls and trade embargoes should be given to the broker selection and affecting movement of goods among other the contracting process. things. There has been a focus in the UAE on a revised regulatory framework, to implement such non-fiscal measures in respect of trade control.

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Personal taxation • A report from the General Directorate of The contribution rates and bases for other There is currently no personal income Residency and Foreigners Affairs specifying GCC nationals vary, but are broadly in line tax imposed on the income of individuals the date and times at which the individual with those for UAE nationals. working in the UAE, and no tax returns has entered/left the UAE since obtaining need to be filed. his/her residence visa (exit/entry report). Under the UAE labor law, non-GCC national employees are entitled to an end of service Residence Social security, pension benefit (EOSB) if their employment contract There are no tax laws covering individuals Social security contributions are due is terminated after completion of at least in the UAE, and as a result, there is only in respect of nationals of the GCC one year of service. EOSB is payable by the no domestic concept of personal tax countries (Bahrain, Kuwait, , Qatar, employer and calculated as 21 days per residence. Nevertheless, the MOF Saudi Arabia and the UAE). For UAE year of basic wages for the first five years of issues TRCs to individuals who satisfy national employees, the employer and employment, plus 30 days per year of basic the requirements of the MOF (including employee contribution rates are 12.5% wage for each additional year of service, a physical presence of more than 183 and 5% respectively, and contributions are subject to a maximum EOSB payment of days within any 12-month period) and a based on the monthly contractual salary, two years’ remuneration. pertinent double tax treaty, if appropriate. including basic allowances, as agreed in the local employment contract. Copies of the following documents are required as part of the application:

• Passport; • UAE residence visa; • Emirates ID; Under the UAE labor law, non-GCC • Certified UAE bank statements for the last 6 months (stamped by the bank); national employees are entitled to • Letter from the company stating the position and remuneration of the employee an end-of-service-benefit if their or certified salary certificate; employment contract is terminated after • Copy of the tenancy contract for any personal premises leased by the individual completion of at least one year of service. (or by the company on behalf of the individual) in the UAE; and

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19 Doing business guide | Understanding the United Arab Emirates’ tax position

Immigration and labor landscape

Introduction (residence permit) in the foreign national’s Foreign investors interested in establishing passport. In general, a business can recruit a presence in any of the seven emirates; either expatriate or local national staff. The UAE has been a Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah Free Zone based employers are required to regional trade hub and (RAK), Fujairah, Ajman and Umm Al apply for work permits for their employees Quwain (UAQ) maintain a large degree via the relevant Free Zone authority. a permanent Middle of independence when managing the Employers based in the Mainland would immigration process requirements, policies apply for employee work permits at the Eastern destination for and regulations. While all the Emirates Immigration department. international investors. follow the same immigration process governed by the federal authorities, Dubai All immigration and labor applications has more flexible immigration processing are to be submitted through the relevant regulations and is the home for many jurisdictional/Free Zone authority’s online UAE nationals are required to obtain Free Zone authorities facilitating the portal. The presence of a company- work authorization through the Ministry establishment of foreign entities in the appointed public relations officer (PRO) is of Human Resources and Emiratization country. typically required for certain applications, (MOHRE) when employed by mainland submissions and for in-person applications entities. For Free Zone entities, UAE The UAE has been a regional trade hub and follow ups. nationals are required to obtain work a permanent Middle Eastern destination authorization through the Free Zone for international investors. The open Employers can only engage a foreign authority in which the employer is based. environment, tolerant values, infrastructure employee in line with the specific and flexible immigration regulations have occupation designated on the work and GCC nationals are visa exempt and can live attracted many investors throughout residence document. The employee can in the UAE without the need to obtain a the past years. The UAE immigration and only work in the specific location or for a residence permit. labor authorities are continuously running branch of the same employer that has the updates to the relevant legislations and same business activities and where the The validity of work authorization and laws governing the immigration and labor employee is engaged in the same activity. residence permits ranges from 1-3 years laws in the country. and it is renewable. Health insurance requirements are Work authorization imposed by the government for the General requirements sponsorship of employees’ work permits. Foreign nationals who intend to conduct An employer is required to submit valid productive, hands-on work activities in the health insurance at the final stage of a new UAE must apply for a work and residence or renewal work and residence permit permit. Work authorization is issued in the application for its employee. form of a work and residence stamp

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Summary process of work and Where the intended job title is managerial When processing a work permit application residence permit in nature, the applicant must hold a higher for a foreign national, the MOHRE 1. Free trade zones education degree (which does not have considers the following*: The work and residence permit application to be relevant to the job title). The degree process is submitted to the relevant Free certificate must be legalized in the country • The worker must possess professional Zone authority in which the employer of issuance, translated to Arabic and competence or academic qualifications is based. The Free Zone subsequently attested at the UAE’s Ministry of Foreign needed in the country. forwards the application to the relevant Affairs. The legalization process can • Whether the worker has lawfully entered immigration department for consideration. take a few weeks or substantially longer, the country and satisfied the conditions of The Free Zone authority acts as the depending on processing times of the residency in the UAE. ultimate sponsor of the employee. relevant entities in the country of issuance. • Whether there are UAE nationals registered in the employment section who Employers based in free trade zones have Processing time: the estimated processing are capable of performing the required job. a quota restriction on work visas. The time for the completion of a Free Zone amount of the quotas is generally limited sponsored work and residence permit * The MOHRE is yet to fully implement to one foreign worker for each 9 square application is approximately 2-3 weeks (in these considerations to the Dubai mainland meters of office space, although this can addition to be translation, legalization and work and residence permit process. differ between each Free Zone. If a quota attestation process, where required). limit has already been reached, a quota Provided the applicant meets all required upgrade can be applied for, but approval is 2. Mainland criteria, the MOHRE will issue an granted at discretion. Work and residence permit applications employment entry permit approval after for those employed by mainland entities which the Department of Immigration will The work and residence permit application are required to go through the approval of issue the employment entry permit. The process starts with the submission of an the MOHRE and the relevant jurisdictional employment entry permit is valid for 60 employment entry permit application to immigration department. days from the date of issue and is now the relevant Free Zone authority. Once issued electronically. an employment entry permit is secured, According to Article 13 of the UAE Labor the employee may travel to the UAE and Law, companies operating in mainland Once an employment entry permit is commence his/her assigned activities. UAE are required to obtain an approval secured, the employee may travel to the However, there are post-arrival formalities from the Labor Department (represented UAE and commence his/her assigned that are required to be undertaken to by the MOHRE) and obtain a work permit. activities. The remaining in-country receive the final residence permit and The approval is issued in the form of an formalities are similar to the Free Zone Emirates ID. Those formalities include employment quota and a work permit. residence and work permit process. undertaking a medical fitness test. The Once a work permit is approved, the medical fitness test will include a blood test employer is then able to submit an Processing time: the estimated processing to check for HIV, hepatitis B and an X-ray to Employment entry permit application time for the completion of a mainland screen for tuberculosis. through the relevant jurisdictional work and residence permit application immigration department. is 4-6 weeks (in addition to any required document legalizations that may be required).

3 The Gulf Cooperation Council (GCC) is a political and economic alliance of seven Middle Eastern countries—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman.

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3. In-country work and residence 5. Who can be recognized as a dependent? permit In-country applicants are able to obtain The below tabular form shows a list of dependent categories. work authorization without the need to exit the UAE. Examples of in-country Recognized as a dependent Authorized to work as a applicants are individuals on cancelled dependent residence visas, tourist/business visitors Opposite-sex No - must apply for work and individuals under a guardian’s visa Yes spouse authorization. sponsorship.

Same-sex spouse No N/A 4. In-country work and residence Applicability permit Opposite- Work and residence permit holders sex domestic No N/A can sponsor married partners' partner children, provided they meet the salary Same-sex requirements (minimum salary of domestic No N/A partner AED 4,000 or AED 3,000 plus AED 1000 accommodation allowance). Parents can Under 18 years of age, unmarried female children over also be sponsored, but the application is 18 and children over the age No - must apply for work Children discretionary. of 18 with a mental or physical authorization. disability (at the discretion of the authorities)

Yes, special approval is required No - must apply for work Parents to be obtained from the main Applicability authorization. In-country applicants immigration department

Yes, special approval is required are able to obtain work No - must apply for work Siblings to be obtained from the main authorization. authorization without immigration department the need to exit the UAE.

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6. Documents required from Alternative work and residence dependents authorizations • Original passport valid for at least six Dependents Since 2010, the UAE's months and containing at least three blank Female dependents above the age of 18 Labor Law has made pages; may obtain work authorization based on • Copy of passport biometric pages; their dependent residence status, provided provisions which allow an • Digital passport photo; a ‘no objection certificate’, signed by their employee to have a part- • For spouse’s sponsorship, a marriage sponsor, is provided and submitted to time job along with a certificate, legalized and translated into the authorities. The work authorization Arabic at an authorized translation office in approval is obtained from the MOHRE and full-time job, subject to the UAE; is issued in the form of a non-sponsored certain conditions. • For children’s sponsorship, a birth Labor card for employees working in certificate, legalized and translated into mainland entities. For Free Zone entities, Arabic at an authorized translation office in the work authorization is obtained from the As per Federal Decree Law No. 2 of 2007, if the UAE; Free Zone authority in which the employer an expatriate is caught working for another • Health insurance card; and is based. company without an official permit, then • For parents’ sponsorship, a proof of a fine of AED 50,000 will be applied to relationship document should be obtained Processing time: the estimated processing the hiring company, in addition to other from the embassy/consulate of the time for the completion of a non- penalties in case of repeating the offence. sponsor’s citizenship attested by the UAE sponsored labor card application is 5 Ministry of Foreign Affairs. working days. Processing time: the estimated processing time for the completion of a temporary 7. Documents required from the Split contracts work permit application is 5-7 working sponsor Since 2010, the UAE's Labor Law has made days. • Electronic copy of the Labor contract provisions which allow an employee to have of the sponsor (primary applicant)/salary a part-time job, along with a full-time job certificate in arabic; subject to certain conditions. The employee • Electronic copy of the registered tenancy can work part-time provided he/she has contract in the primary applicant’s name obtained the required work authorization attested by the jurisdictional municipality; from the MOHRE. The work authorization • Water and electricity bill copy; is issued in the form of a temporary work • International Bank Account Number permit. Temporary work permits are issued (IBAN); with a validity of 6 months and can be • Scanned copy of the passport and extended for a maximum of a total of 12 residence visa of the sponsor; and months. A temporary employment contract • Original and copy of Emirates ID card and a no objection certificate (NOC) from – front and back (if new Emirates ID card the residence permit sponsor is required is under processing, an old Emirates ID for the approval of a temporary work card can be used to file the dependents’ permit application. applications). Part-time work permit holders are allowed to work in another company at the same time as working in the current company on a part-time basis for less than eight hours per day.

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Freelance work and residence permit scientists, inventors, as well as creative 3. Outstanding students Several Free Zones in the country offer individuals in the field of culture and art. Outstanding students with a minimum a freelance work and residence permit The visa advantage extends to the spouse grade of 95 percent in public and private option for expatriates. The Freelance and children. All categories are required secondary schools are eligible for a permit enables individuals to conduct to have a valid employment contract in a 5-year visa, as well as university students business as a sole practitioner. The specialized field of priority in the UAE. within and outside the country having relevant jurisdictional immigration a distinction GPA of at least 3.75 upon department regulates the issuance of the Processing time: the estimated processing graduation. The 5-year visa includes freelance residence permits and freelance time for the completion of a 10-year families of the outstanding students. trade licenses. work and residence permit application is approximately 7-10 working days. Processing time: the estimated The Free Zones that currently offer a processing time for the completion of a freelance work and residence permit 5-year investor visa 5-year residence permit application is include Dubai Development Authority, Expatriates from the below listed approximately 7-10 working days. Dubai Design District, Abu Dhabi’s categories are entitled to apply for a 5-year twofour54, Fujairah Creative City, Ras Al residence visa in the UAE. Third-party sponsorship Khaimah Economic Zone, Sharjah Media Several manpower and recruitment City and Ajman Free Zone. In order for an 1. Real estate investors in the UAE, agencies offer third-party sponsorship expatriate to be eligible for a freelance provided they meet the below criteria: which is typically set up based on a work and residence permit, the profession • The real estate property value should not service agreement with a local or overseas would have to be related to the activity be less than AED 5 million. employer. This is a useful alternative for the of the Free Zone. Activities allowed for • The ownership of the real estate property deployment of assignees without having a freelance licenses vary between Free must not be on a loan basis. local corporate presence (or for companies Zones. • The property must be retained for at in the UAE, where a presence is required least three years. in another jurisdiction, whether an Processing time: the estimated processing Emirate or Free Zone). A local employment time for the completion of a freelance 2. Entrepreneurs contract and local payroll are mandatory work and residence permit application is Expatriates owning an existing project in requirements. approximately 10-14 working days. the UAE with a minimum capital of AED 500,000 or those who have the Processing time: the processing time for 10-year investor visa approval of an accredited business the completion of a work and residence Expatriates from the below listed incubator in the country are generally permit application through a third-party categories are entitled to apply for a eligible for a multi-entry visa for six months, vendor takes approximately 8-10 weeks. 10-year residence visa in the UAE. renewable for another six months. One-year residence permit extension 1. Investors in public investments with The same can then be converted with a for certain dependent categories value of a minimum of AED 10,000,000 special approval to a 5-year investor visa. Widows, divorced women and their 2. Persons with specialized talents: The long-term visa includes the spouse and children are granted a one-year residency this includes specialized talents and children, a partner and three executives. visa extension. Male dependents above researchers in the fields of science and the age of 18 who have completed their knowledge such as doctors, specialists, university studies are also granted a 1-year extension on their UAE residence permits sponsored by their guardian/university.

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25 Doing business guide | Understanding the United Arab Emirates’ tax position

Short-term work authorization before the employee/sponsor’s visa is Free Trade Zones cancelled. Short-term work authorization is issued in Eligibility for the mission the form of an access card sponsored by Once a UAE residence visa is cancelled, visa is highly dependent the Free Zone entity in which the employer 30 days will be granted to exit the UAE is based. A local employment agreement or change status (e.g. be sponsored on the UAE sponsoring is required for the temporary access by another employer, obtain spouse company. It should card, and foreign national employees may sponsorship, etc.). remain on foreign payroll. be noted that not all Processing time and location sponsoring companies are Processing time: the estimated processing Work and residence permit cancellation time for the completion of a temporary applications must be filed with the relevant eligible to obtain a mission access card application is approximately authority by the prospective employer, visa. 5-7 working days. regardless of whether the employee is in the UAE or not. Mainland Inter-emirate assignments A mission visa may be obtained for foreign Processing challenges for work permits Generally, an employee can be seconded nationals on short-term work assignments Whilst the UAE immigration authorities to a branch of his/her employer and and must be applied for and obtained do not formally list any restrictions on current visa sponsor. However, in cases of by the UAE sponsoring company before the issuance of residence visas to certain secondment to a client’s site or any other the foreign nationals travel to the UAE. nationalities, there are a number of third-party entity, the employee is required A local employment contract is required countries whose citizens may face delays to secure a temporary work authorization for the mission visa, and foreign national (see list below), requests for additional from the relevant jurisdictional authority. employees may remain on foreign payroll. documents or rejections in their visa application. Employer compliance Eligibility for the mission visa is highly Employers in general must be in good dependent on the UAE sponsoring High risk of delay/rejection standing with the MOHRE and GDRFA, as company. It should be noted that not all • Afghanistan well as the relevant Free Zone authority (if sponsoring companies are eligible to obtain • Algeria applicable). a mission visa. • Bangladesh • Iran An employer is required to hold a valid copy Processing time: the estimated processing • Iraq of all of the below corporate documents time for the completion of a mission visa • Palestine for the submission of any immigration application is approximately 3-4 weeks. • Syria application for its employees. • Tunisia Exit requirements/de-registrations • Yemen 1. Trade license Employers must cancel employees’ work 2. Establishment card and residence permits upon termination Moderate risk of delay/rejection 3. E-signature card of employment, doing so prior to • Egypt the employee departing the country. • Kenya The employer must have the relevant Upon termination of employment and • India quotas and sponsorship permissions in cancellation of the work and residence • Lebanon place (if applicable). permit, employers are typically responsible • Libya for the repatriation costs of the employee • Morocco in-line with the employment contract and • Nigeria UAE labor law. • Pakistan • Somalia Any dependent visas must be cancelled • South Africa • Turkey

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Emiratization Business visitors Annuity branch 2. Impermissible activities In 2016, the UAE Government launched Most foreign nationals entering the UAE • Physical work activities cannot be the Emiratization (Tawteen in Arabic) to conduct ordinary business activities performed, i.e. ‘hands on’ work campaign, which mandates the inclusion require a business visa. The process of in the job sector, particularly for obtaining a visa will depend on the 3. General requirements for business in the private sector. Emiratization aims applicant’s nationality. visitors to increase the number of Emiratis in the 1. Passport valid for at least six months job market and their contribution to the Select nationalities may obtain a visa on with a minimum of 3 blank pages economy. There has been an increased arrival (VoA) issued at the port of entry. If 2. Passport-sized photo on a white focus on this initiative since 2019 and the not eligible based on nationality, business background aim is to activate Article 14 of the labor visitors may be able to obtain a visit 3. Applicants must establish the specific law on the regulation of labor relations. e-visa directly online from the General purpose of the visit and must demonstrate Article 14 states that It is not permissible Directorate of Residency and Foreigners intent to depart the country at a fixed time for a recruitment department to hire non- Affairs without sponsor registration prior to (present a valid confirmed onward ticket). Emiratis before making sure that no Emirati arrival. For Free Zone companies, the e-visa 4. Applicants must also establish that registered in the employment section is is obtained through their immigration they have sufficient funds to support unemployed and able to perform the work portal. themselves while in the UAE. required. 5. Health issues, criminal violations, or Citizens of GCC countries have established circumstances giving rise to security Following a strategic plan to promote visa exemptions with the UAE and may concerns may trigger denial of admission. Emiratization, the MOHRE decided to enter the country without a visa to conduct localize more jobs in the private sector. business activities, however the position 4. Visa validity and maximum Starting from 2017, companies that are may differ if they are visiting a Free Zone authorized period of stay registered with Tas'heel's online services where the regulations differ depending on Visit e-Visas are issued for single or and that employ over 1000 workers would the relevant Free Zone. Foreign national multiple entries with a 30 or 90 days be required to hire Emirati citizens for data residents of GCC countries may be eligible duration of stay. VoA are issued at the port entry positions. for a visit e-visa with multiple entries for of entry. Durations of stay vary and are business. However, if visiting a Free Zone, determined upon entry at the discretion of The MOHRE decided that all construction the regulations may differ depending on immigration authorities. A single duration facilities with a workforce of 500 or more the relevant Free Zone. Business visitors of stay will not exceed 90 days. employees must appoint at least one are not required to register with the local Emirati occupational health and safety authorities. The UAE does not have a required cooling- officer from 2017. off period between visa issuance except 1. Permissible business activities for VoA issued for the European (EU) Please note that the MOHRE is yet to • Business meetings nationals which have a cooling-off period fully implement Emiratization into the • Buying goods for sale outside the country of 90 days upon exhaustion of the initial 90 immigration processes for mainland • Touring a company facility days period which is granted within any 180 companies. Free Zones are currently • Attending a trade show or seminar days period. Repeated, extended visits may exempt from Emiratization. convention appear suspicious and result in increased • Attending corporate stockholders’ scrutiny on the part of immigration officers. assemblies There are no restrictions on the number of • Establishing a business venture or to entries authorized per year. explore possibilities to set up a business venture • Trade delegations

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5. Future changes Impermissible activities In case of unlimited contracts, an • The Emirates ID card is expected to soon • Conducting direct and productive work employment relation is terminated in one replace a work and residence permit. for your employer’s entity in Dubai. of the following instances: • The Federal Authority for Identity • Starting your own business from within and Citizenship is expected to replace Dubai. - Both, the employer and employee the relevant jurisdictional Immigration mutually agree to terminate the contract. departments in all emirates. Labor laws -When either party decides, at any time, to • With increased focus on the Emiratization 1. Employment contracts terminate the contract provided that the initiative, employers should expect Generally, there are two types of terminating party abides by the legal notice further scrutiny to be imposed on foreign employment contracts for companies requirements and continues to honour his nationals' work and residence permit operating in the private sector. The obligations for the duration of the notice applications. difference lies in the provisions for end of period, which cannot be less than one • Visa are expected to boost expats' service gratuity and termination. month and no longer than three months. confidence to stay in the UAE and attract -When either party acts unilaterally to more investments. • Limited term contract or (fixed term) terminate the contract, without complying • Unlimited term contract. with the legal notice and without reasons Virtual work program of default by the other party - in this case, Dubai has launched a unique virtual/ A local employment contract is required to the terminating party bears the legal remote working program enabling eligible be in place, and this is applicable to both consequences of early termination. foreign professionals, entrepreneurs and mainland and Free Zone entities. company owners to work remotely from • Termination: Dubai for up to one year with the ability 1.1 Limited term contract or (fixed term) An employment relation is deemed to have to bring their family members with them A limited contract cannot exceed two years' ended without due process when either as well as access all services in Dubai, term and is required to state the notice the employer or employee terminates the including telecoms, utilities, and schooling period ranging from a minimum of one employment relation without complying for children. This program has been month to a maximum of three months. with legally mandated procedures. recently introduced and details of the application process for the main applicant • Termination: In this case, the wronged party may initiate and dependents are to be confirmed. Either party can terminate the original legal action and compensation. contract or a renewed contract, provided Eligibility they comply with the legal consequences of 2. Free trade zones In order to qualify for the program, the early termination which include: Companies operating in a free trade zone applicant must have: • Written notice for at least 1 month in are generally required to use a Free Zone • A minimum monthly salary of USD 5000 advance but no longer than 3 months. generated template for the employment per month. • Serving the agreed upon notice period. contract. Whilst some Free Zones grant • An overseas employment contract valid • Compensating the other party to the the freedom for an employer to use a for at least 1 year. level that was agreed to by both the company's own contract, the latter is • Valid health insurance for use in Dubai. parties, provided this does not exceed the required to be reviewed by the Free Zone’s equivalent of three months' gross wages. legal team to ensure compliance with the Permissible activities Free Zone’s regulations and the federal • Conduct overseas role remotely from 1.2 Unlimited term contract labor laws. Dubai for up to one year. An unlimited term contract is open-ended, • Visit employer’s office in Dubai for more flexible and commonly used in the 3. Mainland networking and attending meetings. UAE. Either parties can terminate the Companies operating in mainland UAE are • Conduct client meetings. contract with mutual consent or by giving required to comply with the MOHRE labor a notice of 1 to 3 months. The parties laws. An offer letter is initially required to involved must honor their obligations be obtained through the MOHRE system throughout the notice period. for a work permit to be granted. Once a work permit is approved, a Labor contract is then generated through the MOHRE system.

28 Doing business guide | Understanding the United Arab Emirates’ tax position

4. Wage protection system (WPS)5 WPS is only applicable to mainland entities The Ministerial Decree 788 of 2009 on the registered with the MOHRE across all WPS is only applicable Wage Protection System (WPS) came into sectors and industries in the UAE. This force on 1 September 2009 in the UAE. The requirement is not applicable to Free to mainland entities WPS was implemented in stages and now Zones, except for Jebel Ali Free Zone in registered with the MOHRE all employers are required to comply. Below Dubai. is a list of the minimum WPS requirements. across all sectors and All salaries must be paid through WPS industries in the UAE. • At least 70% of all salaries must be paid by the 15th calendar day of the following through WPS. month. The employer’s MOHRE account • A new employee must be added to the will be blocked if salaries are not processed WPS process within 60 calendar days on time. The MOHRE account will be 6. Social security registration (GCC) from the execution of their employment unblocked automatically if salaries are Government and private sector employers agreement. paid before the last calendar day of the must register their UAE and GCC national • No more than 10% of an employee’s month. In the event the employer fails to employees with the General Pension and salary can be deducted for any reason pay employees’ salaries before the end Social Security Authority (GPSSA). (exemptions listed below). of the following month they were due, an administrative penalty will be imposed on The WPS is an electronic salary transfer the company for the late payment of wages. system that was set up by the UAE to regulate the payment of salaries to 5. Remuneration employees. It is overseen by the Central There is no minimum salary stipulated in Bank of the UAE. The system allows the the UAE Labor Law. However, the law does MOHRE to create a database that records state that salaries must cover the basic wage payments in the private sector to needs of the employees. guarantee the timely and full payment of agreed-upon wages. MOHRE is linked Remuneration is typically divided into three with the systems of Federal Authority components: basic salary, accommodation for Identity and Citizenship which allows allowance and transport allowance. employers to exclude the following categories of employees from the Wage The UAE Labor Law does not provide any Protection System (WPS) compliance guidelines on how the salary is divided. requirements: However, it is worth noting that end of service benefits (next page) are only based • Employees who are outside the UAE on the basic salary. It is at the discretion of • Employees who have been reported the company to decide this percentage. absconding by their employers by filing “escape reports” • Employees who have filed a lawsuit against their employer in the Labor court.

5Wages Protection System (WPS) is an electronic salary transfer system that allows institutions to pay workers' wages via banks, bureaux de change, and financial institutions approved and authorized to provide the service.

29 Doing business guide | Understanding the United Arab Emirates’ tax position

7. Working hours and days This could increase to 50 percent if It should be noted that the actual date The UAE Labor Law identifies the normal overtime it is worked between 9 pm and 4 of public holidays, especially Islamic working hours for the private sector as am. holidays, is subject to variation as it based 8 hours per day or 48 hours per week. on the Islamic lunar calendar (which is The working hours may be increased to 9 Some Free Zones, in particular DIFC and approximately 11 days shorter than the hours a day for certain business industries ADGM, have their own labor regulations in Gregorian calendar), as well as on the such as hotels and cafes after approval place that have some marked differences sighting of the new moon, which marks the from the MOHRE. Government entities are to federal labor law. beginning of the new month. not governed by the Labor Law and they operate for 7 hours daily. 8. Public holidays 9. End of service benefits Article (74) of the UAE Labor Law provides The UAE Labor Law dictates that employers Working for more than 7 hours a day is that: are obliged to pay EOSB to any non-GCC prohibited in arduous or unhealthy types of national employees who have completed at work and industries. Each worker shall be entitled to an official least one year of continuous employment. holiday with full pay on the following Normal working hours are reduced by occasions: The end of service gratuity is calculated on two hours daily during the holy month of • New Year's Day the basis of the last basic salary. Hence, Ramadan. • Eid Al Fitr it will not include allowances such as • Arafat Day accommodation, transport, relocation, Friday is the Islamic holy day and therefore • Eid Al Adha utilities, furniture, etc. a universal day off, and Saturday is the • Hijri New Year second day of the weekend in most • Prophet's Birthday The DIFC has implemented replaced industries. • Martyrs' Day EOSB with a defined contribution savings • UAE National Day scheme, called the DIFC Employee Overtime is considered if the nature of Workplace Savings (DEWS). Under this the job demands working beyond normal Accordingly, the above occasions are scheme, employers are required to pay on working hours and it will entitle the official holidays for employees working in behalf of each employee into DEWS on a employee to pay equal to normal working the private sector, during which they are monthly basis. The scheme is intended to hours' remuneration plus 25 percent of entitled to full pay. The holidays listed give employees more visibility and control that pay. above are applicable to all employees over the end of service benefit. whether they are working in the public or

30 Doing business guide | Understanding the United Arab Emirates’ tax position

United Arab Emirates double tax treaty network

Treaties Status Dividends (%) Qualifying dividends (%) Interests (%) Royalties (%)

1 Albania 10 0/5 0 5

2 Algeria 0 0 0 10

3 Andorra 0 0 0 0

4 Angola 8 8 8 8

5 Antigua and Barbuda 0 0 0 0

6 Argentina 15 10 12 10

7 Armenia 3 0 0 5

8 Australia Pending Pending Pending Pending

9 Austria 0 0 0 0

10 Azerbaijan 10 5 7 5/10

11 Bangladesh 10 5 10 10

12 Barbados 0 0 0 0

13 Belarus 10 5 5 5/10

14 Belgium 10 5 5 5

15 Belize 0 0 0 0

16 Benin 0 0 0 0

17 Bermuda Pending Pending Pending Pending

18 Bosnia and Herzegovina 10 0/5 0 5

19 Botswana Pending Pending Pending Pending

20 Brunei 0 0 0 5

21 Brazil Pending Pending Pending Pending

22 Bulgaria 5 5 2 5

23 Burundi 0 0 0 0

24 Cameroon 10 10 7 10

25 Canada 15 5/10 10 0/10

26 Chad Pending Pending Pending Pending

27 China (People’s Rep.) 0/7 0/7 0/7 10

28 Colombia 15 5 0/10 0/10

29 Comoro Islands 0 0 0 0

30 Costa Rica Pending Pending Pending Pending

Double tax treaty in force Double tax treaty signed but not in force Treaty under negotiation

31 Doing business guide | Understanding the United Arab Emirates’ tax position

Treaties Status Dividends (%) Qualifying dividends (%) Interests (%) Royalties (%)

31 Croatia 5 5 5 5

32 Cyprus 0 0 0 0

33 Czech Republic 0/51 0/51 01 101

34 Ecuador 0/10 0/10 0/10 10/15

35 Equatorial Guinea 0 0 0 0

36 Egypt 0 0 0/10 10

37 Estonia 0 0 0 0

38 Ethiopia 0/5 0/5 0/5 0/5

39 Fiji 0 0 0 10

40 Finland 0 0 0 0

41 France 0 0 0 0

42 Gambia 0 0 0 0

43 Georgia 0 0 0 0

44 Germany 10/15 5 0 10

45 Greece 0/5 0/5 5 10

46 Guernsey Pending Pending Pending Pending

47 Guinea 0 0 0 0

48 Guyana Pending Pending Pending Pending

49 Hong Kong 0/5 0/5 0/5 5

50 Hungary 0 0 0 0

51 India 10 10 0/5/12.5 10

52 Indonesia 101 101 0/51 5

53 Iraq Pending Pending Pending Pending

54 Ireland 0 0 0 0

55 Italy 15 5 0 10

56 Japan 10 5 0/10 10

57 Jersey 0 0 0 0

58 Jordan 7 7 0/7 10

59 Kazakhstan - 0/5 0/10 10

60 Kenya 5 5 10 10

Double tax treaty in force 1The rates are subject to a ‘most favored nation’ clause; if this jurisdiction concludes a more favorable treaty WHT rate with another GCC country other than the UAE, then the favorable treaty Double tax treaty signed but not in force WHT shall automatically apply under the UAE treaty Treaty under negotiation

32 Doing business guide | Understanding the United Arab Emirates’ tax position

Treaties Status Dividends (%) Qualifying dividends (%) Interests (%) Royalties (%)

61 Korea (Rep.) 10 5 0/10 0

62 Kosovo 0/5 0/5 0/5 0

63 Kyrgyzstan 0 0 0 5

64 Latvia 0/5 0/5 0/2.5 5

65 Lebanon 0 0 0 5

66 Libya 0 0 0/5 0/10

67 Liechtenstein 0 0 0 0

68 Lithuania 0/5 0/5 0 5

69 Luxembourg 0/10 0/5 0 0

70 Macedonia (FYR) 0/5 0/5 0/5 0/5

71 Malawi Pending Pending Pending Pending

72 Malaysia 0/10 0/10 0/5 10

73 Maldives 0 0 0 0/7

74 Mali Pending Pending Pending Pending

75 Malta 0 0 0 0

76 Mauritania 0 0 0 0

77 Mauritius 0 0 0 0

78 Mexico 0 0 0/4.9/10 10

79 Moldova 5 5 6 6

80 Mongolia Pending Pending Pending Pending

81 Montenegro 10 0/5 0/10 0/5/10

82 Morocco 10 0/5 0/10 0/10

83 Mozambique 0 0 0 0/5

84 Nepal Pending Pending Pending Pending

85 Netherlands 10 0/5 0 0

86 New Zealand 15 15 10 10

87 Nigeria 7.5 7.5 7.5 7.5

88 Pakistan 15 10 10 12

89 Palestine 0 0 0 0

90 Panama 5 5 0/5 5

Double tax treaty in force Double tax treaty signed but not in force Treaty under negotiation

33 Doing business guide | Understanding the United Arab Emirates’ tax position

Treaties Status Dividends (%) Qualifying dividends (%) Interests (%) Royalties (%)

91 Paraguay 15 15 6/15 15

92 Peru Pending Pending Pending Pending

93 Philippines 15 0/10 0/10 10

94 Poland 0/5 0/5 0/5 5

95 Portugal 15 5 0/10 5

96 Romania 0/3 0/3 0/3 3

97 Russia - 0 0 -

98 Rwanda Pending Pending Pending Pending

99 San Marino 0 0 0 10

100 Saudi Arabia 5 5 0 10

101 Senegal 5 5 5 5

102 Serbia 10 5 0/10 10

103 Seychelles 0 0 0 5

104 Singapore 0 0 0 0/5

105 Slovak Republic 0 0 0/10 0/10

106 Slovenia 5 5 0/5 5

107 South Africa 10 5 10 10

108 Spain 15 5 0 0

109 Sri Lanka 10 0 10 10

110 Saint Kitts and Nevis 0 0 0 0

111 Sudan 0 0 0 5

112 Suriname 5 5 5 5

113 Syria 0 0 0/10 18

114 Switzerland 15 5 0 0

115 Tajikistan 0 0 0 10

116 Thailand 101 101 10/151 15

117 Tunisia 0 0 2.5/5/10 7.5

118 Turkey 12 5/10 10 10

119 Turkmenistan 0 0 0 10

120 Uganda Pending Pending Pending Pending

Double tax treaty in force 1The rates are subject to a ‘most favored nation’ clause; if this jurisdiction concludes a more favorable treaty WHT rate with another GCC country other than the UAE, then the favorable treaty Double tax treaty signed but not in force WHT shall automatically apply under the UAE treaty Treaty under negotiation

34 Doing business guide | Understanding the United Arab Emirates’ tax position

Treaties Status Dividends (%) Qualifying dividends (%) Interests (%) Royalties (%)

121 Ukraine - 52 0/32 0/102

122 United Kingdom 15 15 0 0

123 Uruguay 72 52 0/10 0/5/10

124 Uzbekistan 15 5 0/10 10

125 Venezuela 10 0/5 0/10 10

126 Vietnam 15 5 0/10 10

127 Yemen 0 0 0 10

128 Zimbabwe Pending Pending Pending Pending

Double tax treaty in force 2 The rates are subject to a ‘most favored nation’ clause; if this jurisdiction concludes a more favorable treaty WHT rate with a country other than the UAE, then the favorable treaty WHT shall Double tax treaty signed but not in force automatically apply under the UAE treaty Treaty under negotiation

35 Doing business guide | Understanding the United Arab Emirates’ tax position

Want to do business in the United Arab Emirates?

Dubai Abu Dhabi Sharjah Al Fattan Currency House Al Sila Tower United Arab Bank Building DIFC, Building 1 Abu Dhabi Global Market Square Al Buhairah Corniche Dubai, United Arab Emirates Abu Dhabi, United Arab Emirates Sharjahi, United Arab Emirates Phone: +971 (0) 4 506 4700 Phone: +971 (0) 2 408 2424 Phone: +971 (0) 6 517 9500

We welcome the opportunity to discuss your needs and provide you with a better understanding of the issues discussed in this material. Please do not hesitate to contact one of our specialists.

The ‘Doing business guide’ series is supplemented by the Middle East Tax Handbook, which provides a summary of basic tax information in a country-by-country snapshot.

36 Doing business guide | Understanding the United Arab Emirates’ tax position

International and M&A tax

Alex Law Vishal Sharma Jan Roderick van Abbe [email protected] [email protected] [email protected]

Indirect tax

Mark Junkin Michael Towler Adrienne D' Rose [email protected] [email protected] [email protected]

Customs and Global Trade Tax management Consulting Business tax

Fernand Rutten Marjolein van Delft Muhammad Bahemia [email protected] [email protected] [email protected]

Immigration Transfer Pricing

Hadi Allawi Mourad Chatar [email protected] [email protected]

Business Process Solutions

Basit Hussain [email protected]

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