There are several benefits of setting up a company in Dubai and some of the most common ones are:-
- Tax Free Status
- Ease of Doing Business
- Potential Customers in UAE, Middle East and Africa
- Buying real estate in Dubai on the name of company
- Making Investments in Cryptos and other Digital Assets
- Creating Dubai Company as Holding Company and making Investments across the Globe
- Several other benefits on a case to case basis.
It is for such reasons that a lot of Indians incorporate a company in Dubai and do business through their Dubai Company.
A Company in Dubai can either be created in the Mainland Dubai or in Freezones in Dubai. If your customers are located in Dubai – then it is advisable that you set-up your company in Mainland Dubai. However, if your customers are located outside Dubai – then registering a company in the Freezone should be preferred. (Refer: Complete List of all Freezones).
Tax Rates in Freezone vs Mainland
The main reason why a lot of Indians (especially online businesses) opt for Company setup 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.
PS: It is also important to note here that VAT is not exempt in all Freezones. There are 2 types of Freezones i.e. Designated Freezones and Non-Designated Free Zones. 5% VAT will get levied on a lot of transactions in a Non-Designated Freezone and therefore it is recommend to set-up a company in a Designated Free Zone only. There are around 20 Freezones which are considered as Designated Freezones and all other freezones are considered as Non-Designated Free Zones.
The biggest blunder which many business owners make due to lack of knowledge is that the set up a company in a Non-Designated Zone and later reaslise that VAT gets levied on a lot of transactions in a Non-Designated Zone. Shifting a freezone is not easy and therefore it is highly advisable to opt for a Designated Free Zone only. (List of all Designated Freezones)
How to set-up a Company in Dubai?
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 company and you dont need 2 persons to register a company.
Once the name is approved, the Immigration and Entry Permit would be generated and this whole process will take around 2-3 weeks.
Post this, you would be required to personally visit UAE to get their health check up done. Post the health check up, the Emirates ID would be created and your VISA Status changed from Tourist Visa to Investor VISA.
On the basis of this, the bank account of the company can be opened in UAE. A person can open a bank account in any bank and activate internet banking (along with Debit & Credit Card) and operate the bank account from anywhere across the Globe without staying in UAE.
It is pertinent to note here that Health Check-up, Emirates ID and Bank Account cannot be opened in UAE without visiting UAE and a person would be required to visit UAE for doing these things.
I’ll personally help you Set up your entity in Dubai from India
- Choose the Best Free-zone Area for your Entity
- Help you Save Tax
- In compliance with RBI & Tax Laws
Fees for Company setup in Dubai
The overall cost for setting up a company in the freezone is Rs. 7 lakhs (approx) for a 3 year license. This fees basically covers the License Fees, Registration Fees, Investor Visa Fees, Office space in a Co-working space, License Cost, Immigration fees etc. There is no other expense to be incurred as this fees is inclusive of everything.
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 fees quoted above is what I pay for my freezone entity and this is the cheapest freezone which I could find which also allowed me to set-up my business there.
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. 7 Lakhs for a 3 year license) and apart from that there are no forms to be furnished or Balance Sheets to be submitted. You only need to have a good consultant for company setup and choosing the right entity structure and once it is set-up you dont need any consultant to help you manage the company.
However, some freezones do require an entity to do certain compliances and prepare Profit & Loss A/c as well as Balance Sheet which is required to be submitted with the freezone. It is always better to check with the freezone about these requirements before setting up a company in any freezone.
Several compliances are required to be done in Mainland entities as both VAT and Corporate Tax is levied on Mainland entities but is not required to be done for Freezone entities. It is for this reason that most of the service as well as Goods exporters prefer to setup a company in a Dubai Freezone.
Through netbanking, I’m easily able to manage the funds as well. 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.
Investor VISA, and Emirates ID would be issued to the owners of the company and they would be required to visit UAE once in 6 months to keep the visa status active. The stay in UAE is immaterial and physical presence for even a couple of hours in UAE solves the purpose. Some people come in the morning and fly back in the evening and that also works.
There are a lot of people who opt for visit Dubai only once in 6 months to keep the Investor VISA and Emirates ID active and prefer to stay in India with their family rest of the time.
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)
As the turnover of my 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 freezone entity even though the freezone entity 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 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 structure the companies in accordance with laws of both countries.
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 ITR Form under Schedule FA about the shares which they hold in the Dubai Company
- The shareholders of the Dubai company are also required to comply with RBI Norms. 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 setup in any Dubai Freezone and the compliances to be done in India regarding the same, feel free to reach out to me through the form below and I’ll be happy to help.