A lot of Indians opt for Dubai Company Formation as it is not only tax free but it doing International Business from Dubai is also easier as compared to doing it from India.
However, before a person starts the process of Dubai Company Formation from India, here are the 7 Most Important Things which a person should check before registering a company in Dubai from India.
7 Important Things to Check before Dubai Company Formation
- Tax Rates in UAE
- Documents required for Indian Nationals
- Time taken for Company Registration
- Company Registration Fees
- Managing the Dubai Company
- Tax in India on Dubai Company
- Additional Compliances
All these points have been explained in detail below in this article.
1. Tax Rates in Freezone vs Mainland in UAE
The main reason why a lot of Indians (especially online businesses) opt for Company Formation in Dubai is because of the tax rates.
Till a couple of years back, there was No Tax at all in the whole of UAE. Neither was there any Income Tax, nor was there any VAT/GST or any other form of tax.
However, 9% Corporate Tax has been levied on the profits above 3,75,000 UAE Dirhams (INR 75 Lakhs) of Mainland entities from June 2023. This tax is only levied on entities in Mainland and not on the entities in Freezone areas. (Refer: Corporate Taxation in UAE)
Apart from this 9% Corporate Tax, there is also VAT which is levied on Sales done in the UAE by Mainland Companies. The rate of VAT is 5% on most items. However, this is applicable only on Sales done in the Gulf and not on sales done where the clients are based outside of the Gulf area to countries like US, Canada, Europe, Australia etc.
It is to avoid such taxes that we recommend forming a company in Freezones as compared to forming a company in the Mainland. (Recommended Read: 7 Practical Differences between Mainland vs Freezones in Dubai)
2. Documents required for Dubai Company Formation
Setting up an company in a Dubai Freezone is a simple process and you are only required to give the name of the company which you plan to register along with Passports and photos of the directors. No other document is required to be submitted for registering a company in Dubai. Even a single person can register a LLC Company in Dubai and you dont need 2 persons to register a company.
However, in case you are registering a subsidiary or a branch in Dubai, additional documents like Company MoA, Company AoA, Board Resolution etc would also be required to be submitted.
3. Time taken to set up a Company in Dubai
The whole process of LLC Company Setup in Dubai will take around 2-3 weeks and can be done remotely from anywhere across the World. After the company is set-up, the company owners are required to visit Dubai to complete the formalities of Emirates ID and open a bank account.
Once the bank account is opened, Internet Banking would be activated and the account can be operated from anywhere across the Globe without staying in UAE.
I’ll personally help you Set up your entity in Dubai from India (Remotely)
- Choose the Best Free-zone Area for your Entity
- Help you Save Tax
- In compliance with RBI & Tax Laws
4. Fees for Company Registration in Dubai
The cost for Company Registration in Dubai varies from freezone to freezone. The total fees for setting up a company in freezone is Rs. 3 Lakhs p.a. and is higher for freezones which have a better location. This cost includes your License Cost, Virtual Office Space, VISA and other misc charges.
The license fees for forming a company in the mainland is higher than cost of forming a company in Freezone and thus, it makes sense to setup a company in mainland only if you intent to provide services or sell products to customers in the UAE.
However, the disadvantage with mainland is the 9% Corporate Tax which gets levied and therefore all exporters prefer to setup the company in the freezone. Mainland Companies are beneficial only if you intent to sell something in the Mainland like some Retail store or Restaurant etc. For somebody whose clients are mainly outside UAE, it makes sense to be setting up the company in a freezone. The license fees varies from Freezone to freezone and some freezones charge much higher fees.
The only drawback of registering a company in a Freezone is that a freezone cannot sell to retail customers located within UAE. It can deal with International Customers (Retail as well as Businesses) and can also deal with Registered Businesses in UAE but cannot deal with Retail Customers who are located inside UAE.
5. Managing the Dubai Company
Managing the entity is simple as there are no compliances which are required to be done in my freezone. You are only required to pay the renewal fees (approx Rs. 1.9 Lakhs p.a.).
The funds lying in the bank account of the dubai company can be easily managed through netbanking and cross country transactions can also be executed through netbanking. The banks also allow us to operated Multi-currency accounts without any need of a mandatory conversion to the local currency. In short – managing the entity is very simple.
Freezone companies are not required to do any compliances or prepare Profit & Loss A/c and Balance Sheet. With effect from Financial Year starting after 1st June 2023, all companies are required to apply for Corporate Tax Registration and file the Corporate Tax Return on an annual basis. Although, NO TAX is levied on the profits of a freezone company, they are still required to register for Corporate Tax and file Corporate Tax Return on an annual basis. There is no other compliance which needs to be done apart from this newly introduced compliance.
While setting up an entity in UAE – it is advisable to opt for an Accounting Firm who can help you do these newly introduced additional compliances as well in UAE.
6. Does Indian Govt levy Tax on Profits earned by Indians in a Freezone?
Whether Indian Govt will levy tax on the Income earned by this Foreign Company will depend on whether the Company is being controlled and managed from India or not. In simple terms, it will depend on whether its Directors are residing in India or residing outside India.
If Directors are Residing outside India
If the Directors of the Dubai Company are residing outside India, then neither can the Indian Govt levy Tax on the Income of the Company and nor can they levy Tax on the Income of the Directors. In such a case, both the Company as well as its Directors would be considered as NRI.
If the Directors are Residing in India
Case I: If the Directors are residing in India and Turnover of the Dubai Company is more than Rs. 50 Crores
In such a case, the Company would be deemed to be Resident in India and Indian Govt will levy Tax on both the Income of the Directors as well as the Income of the Company.
Case II: If the Directors are Residing in India and Turnover of the Dubai Company is less than Rs. 50 Crores
A Foreign Company with turnover/gross receipts of less than Rs. 50 Crores p.a. cannot be considered to be a Resident in India (Circular No. 8/2017 dated February 23, 2017)
In other words, if the turnover of the Dubai company is expected to be less than Rs. 50 crores p.a., the Indian Govt considers the company a Non-Resident and therefore cannot levy any Income Tax or GST on this company. The Indian Govt cannot levy any Income Tax or GST on the foreign company even though the foreign company is being controlled by me from India as the provisions of Section 6(3)(ii) don’t get applicable in this case.
In such a case, the Indian Govt levies Tax on the Income of the Directors but not on the Income of the Foreign Company.
Thus, if you have a bank account in Dubai or US or Portugal etc. in your Individual Capacity, the income earned in that individual bank account would be taxable in India if you are residing in India from Rs. 1 onwards. However, if you own a Company outside India, Indian Govt cannot levy Tax on Income of such company which is registered outside India. And therefore, it is not recommended that you open a bank account in your Individual Name outside India and rather open a company outside India as in such a case the Indian Govt does not have the power to levy any tax.
If you are thinking how I know so much about taxes, then let me intimate you that we are CA’s by Qualification with more than 10 years of experience of helping Indian entreprenuers in setting up a company in Dubai. We ourselves have our offices in both India as well as Dubai and understand the law of both the regions and help our clients structure the UAE Company in accordance with laws of both countries. (Connect with me on Linkedin)
7. Additional compliances to be done in India for the Dubai Company
Additional Compliances are also required to be done in India if any Indian resident opens a company in any country outside India. The additional compliances to be done are:-
- The shareholders of the Dubai company are required to disclose in their Indian ITR Form about the shares which they hold in the Dubai Company
- In some cases, the shareholders of the Dubai company are also required to intimate the RBI about their Dubai Company. The Investment outside India can either be done under the Liberalised Investment Scheme or the Overseas Direct Investment Scheme.
As additional compliance is required to be done in India while incorporating a company outside India, it is advisable to set up the company through a Chartered Accountant who understands both the Indian as well as Dubai/ UAE Tax and Investment Rules and stay legally compliant from the starting rather than regretting later.
If you have any queries regarding Company Formation in Dubai and the compliances to be done in India regarding the same, feel free to reach out to us through the form below and we’ll be happy to help.