Planning a move overseas is a big step, no matter where you are going. There are different social expectations, legal rules, business regulations, tax requirements, and more to figure out.

You need to determine whether you or a key team member is going to make the physical move to head up the overseas expansion, and facilitate this move to be as smooth and efficient as possible. 

Then there are business decisions such as deciding whether to set up a brand-new company, or trade overseas directly under your head company. While there are too many factors to consider in one article, and it is essential to get tailored advice for your situation, you can get a head start by considering an overview of the key concepts that you will need to cover.

1. Operation Zones

Companies in Dubai can choose to operate as free zone companies, offshore companies, or Mainland companies. This decision will have an impact on where you can do business.

If Dubai is going to be your hub for regional or international commerce, then a free zone entity may be the best option. This is because Free Zone Companies can only operate within their Free Zone and abroad, not on the mainland. However, if you are intending to provide goods and services to the UAE, then a Mainland firm would be the required option.

Free Trade Zone Company

There are over 40 zones throughout the UAE that are Free Trade Zones. These zones have special tax, customs, and import regimes. Businesses operating within these Free Trade Zones may be exempt from paying corporate tax as well as import and export taxes. However, they are restricted from doing business with the Mainland.

Mainland

A Mainland business can be set up in Dubai or any other emirates, so they can operate in the UAE as well as internationally.

Offshore Company

If your company is incorporated in the UAE offshore, you can operate with minimal capital requirements and operate on an international basis.

2. Income Taxes

From June 2023 all companies operating in the UAE under a commercial licence are taxed after the first 375,000 AED of their net profits. The tax is charged at a flat rate of 9% and only applies to the profits above this first 375,000 AED. This makes it one of the more appealing corporate tax rates in the world.

Note that Free Trade Zone companies may continue to be exempt from paying corporate tax under their specific free zone incentives. 

In line with the Global Minimum Corporate Tax Rate agreement, multinational firms with profits exceeding EUR 750 million, will have to pay 15% tax. 

From June 2023 businesses operating under the new rules now need to register with the Federal Tax Authority and lodge tax returns for the business on an annual basis.

3. VAT and Excise Tax

Since 2018 a goods and services tax, or a value-add tax, known as VAT, has been applicable at a flat rate of 5%.

There are some exclusions to which items incur VAT, including exports of goods and services, international transportation, some education and healthcare services, investment-grade precious metals, and new construction of residential properties. Some Free Trade Zeons are also exempt from paying VAT for trade within their zones. 

In 2017 the UAE implemented an excise tax. This is an indirect tax that is imposed on goods that are considered to be harmful to either personal health or the environment. This includes a 50% tax on carbonated drinks and a 100% tax on energy drinks and tobacco products.

4. Employer Responsibilities

As an employer you are responsible for paying your employees under the local employment rules and regulations. There are a range of responsibilities that you are required to cover for your employees, including:

• Paying wages in accordance with local laws and regulations. This includes proper job documentation, conditions of labour, and paying wages on time. As there is no individual income tax there is no tax withholding regime to consider.
• Providing health insurance for employees. This is a compulsory requirement for all employers.
• Under UAE law the employer is responsible for paying the travel and recruitment costs, including entry visa, of any employee they are recruiting or moving to the UAE.

5. Moving To Dubai When Expanding Your Business

A visa residency through employment is required for any individual moving to Dubai for work purposes. Note that it is the employer’s responsibility to organise and pay for an employment Visa.

The standard work Visa lasts for two years. This requires an employer sponsor to confirm employment in Dubai.  

A “Green Visa” is applicable for freelancers or self-employed individuals. This requires specialised educational qualifications and evidence of your annual income to prove financial solvency. This Visa is for five years.

Finally, the “Golden Visa” is a residency permit that allows foreigners to live, work, or study in the UAE for 10 years without a sponsor. Investors, entrepreneurs, and more can apply for this Visa. This Visa also allows the immediate family to be sponsored so they can move to Dubai as well.

It is also important that individuals moving to Dubai are aware of local expectations, laws, and requirements, which may be vastly different from your home country.

6. Other Business Responsibilities

As with running a business in any other location, there are essential rules, regulations, licensing, and other requirements that your business needs to be aware of as part of your setup and operation.  Some of these are listed below.

Bank Account

It can take two to four weeks to open a bank account for commercial purposes. While the required documents vary according to the bank and the type of account you open, the Business Manager will need to have their own residency visa in order before you apply.

Trade Licence

Every business that operates in the UAE must have a trade licence, or a business licence. This may be a commercial licence, a professional licence, or an industrial licence, depending on your business activity.

Business Entity

You can set up your business as a sole proprietorship, an LLC company, or a branch office. If operating from a Free Trade Zone your business can be 100% foreign-owned.

7. Double Tax Agreements (DTAs)

The UAE is expanding their list of DTAs throughout the countries of the world in order to facilitate strategic global partnerships. These agreements help ensure that the consequences of being taxed in multiple tax jurisdictions is mitigated via exemptions or reductions in taxation on investments from profits.

While the USA does not have a DTA with the UAE, there is currently a DTA between the UAE and Singapore, as well as the UAE and the UK. Australia is in the process of establishing a DTA with the UAE. 

8. Property Taxes

Although there is no capital gains tax or inheritance tax in the UAE, there is a transfer charge on the transfer of property within the UAE. The rate of charge varies in each Emirate, with a 4% charge applying in Dubai. This transfer fee is typically paid by the buyer of the property.

9. Rental Tax

Although there is no individual income tax in Dubai, there is a rental tax. The tax on rental properties varies between Emirates. In Dubai commercial tenants pay 10% and residential tenants pay 5%. In some locations citizens are exempt from the rental tax.

Foreigners In The UAE

As there is no income tax for individuals, both residents and non-residents of the UAE are not required to lodge an income tax return in the UAE.

However, if you remain a resident of your home country then you will need to lodge a tax return in your country of residence, and this may require the inclusion of income earned from the UAE.

Depending on how your business in the UAE is set up, you may also be required to report this income as foreign income in a local company tax return.

Local Taxation Experts

As there is no individual income tax and corporate tax is new to the UAE, there may be limited access to accountants, and limited experience with the UAE tax regime on a local level.  

It is therefore especially important to seek the advice of International Tax Experts who can help you navigate the new requirements in Dubai, as well as the impact of doing business across multiple borders.

CST have been assisting Australian and expat clients for over 30 years. Helping businesses to set up overseas and connect with local tax experts is an essential part of the support we offer clients around the globe. With the UAE now introducing a corporate tax into their tax regime it is more important than ever that you get the right advice for your expansion into Dubai. 

As an Australian business expanding into the US you will need to consider US, Australian and international taxation issues. Depending on how your business is structured it may be required to pay taxes in both the US and in Australia. As a shareholder, you may also face tax obligations in both the US and Australia.

Residency

The first issue to address with International Taxation is the issue of residency. Your residency, and the residency of your company, is the primary factor in determining which tax jurisdiction has taxation rights over your income.

Both Australian and US residents are taxed on their worldwide income, which means it is important to understand the ways in which double taxation is mitigated.

If you set up a US structure to operate in the US, you will face Australian taxation consequences if the owners and/or managers of the business are Australian residents, and for any interactions you have between your US company and your Australian company.

Conversely, if you use your Australian company to operate a business within the US, you will need to consider the US taxation consequences due to the source of that branch income being in the US.

Tax Treaty

The primary way that double taxation issues are mitigated is through the International Tax Treaty between Australia and the US. When it comes to an Australian business operating in the US, some of the key factors that this Tax Treaty covers include:

• Business profits of an Australian enterprise are only taxable in Australia unless the enterprise carries on business in the US through a permanent establishment there. This means if you establish a permanent presence in the US, your business will be taxed under US regulations. A permanent place of business can be a broad term and may include:

1. A physical place of business including offices, factories, branches, workshops, stores, a place of management, or other physical presence for business operations. 
2. A sales representative of your business who has a permanent establishment who conducts business deals for your business.
3. A permanent provision of services in a specified location, even without a physical presence in that location.

• Transfer Pricing Rules mean that if you have a US entity and an Australian entity, any fees paid between these two entities must be paid on an arm’s length basis. This means there must be a business reason for the fees and a market value basis for calculation of these fees.
• Double taxation is mitigated by both countries typically allowing foreign tax credits to be applied against local taxes.
• The treaty also includes provisions for exchange of information and mutual agreement procedures to resolve disputes.
• A non-discrimination clause ensures that nationals of one country are not subject to taxation in the other country that is more burdensome than that imposed on nationals in the same circumstances.

Withholding Taxes

The Tax Treaty also deals with withholding tax requirements for certain types of income. In some cases, these withholding requirements limit the amount of foreign tax that can be paid on the specified income types.

Dividends

If a US corporation pays dividends to an Australian company that owns 10% or more of the voting stock of the corporation, the rate of US tax on the gross amount of the dividend generally cannot exceed 5%. For other dividends, the rate generally cannot exceed 15%.

For any Australian resident shareholders, this means you will pay either 5% or 15% in US taxes on any dividends distributed to you from your US company. This income is then included in your Australian tax return and you claim the tax paid as a foreign tax credit to offset the Australian tax assessed on this income.

Interest

Interest arising in one of the countries and paid to a resident of the other country generally may be taxed in both countries. However, the rate of tax imposed by the source country generally cannot exceed 10% of the gross amount of the interest.

As an Australian resident any interest income you receive from a US source will be taxed in the US at 10%. The US sourced income then needs to be included in your Australian tax return and you can claim the 10% tax paid as a foreign tax credit to offset the Australian tax assessed on this income.

Royalties

Royalties arising in one of the countries and paid to a resident of the other country generally may be taxed in both countries. However, the rate of tax imposed by the source country generally cannot exceed 5% of the gross amount of the royalties.

As an Australian resident any royalties you receive from a US source will be taxed in the US at 5%. The US sourced income then needs to be included in your Australian tax return and you can claim the 5% tax paid as a foreign tax credit to offset the Australian tax assessed on this income.

International Tax Planning Strategies

Due to the potential complexities involved in dealing with taxes from multiple countries, and the rules and regulations of managing income from multiple countries, it is important to seek appropriate tax advice. International tax planning strategies allow you to optimise your global tax position by factoring in your options around the types of structure, business, and interactions that your business has in the US and in Australia.

In June 2023, the Ministry of Finance released a draft of the Income Tax (Amendment) Bill 2023. The contents of this Bill cover the announcements made in the 2023 Budget Statement and amendments which will bring the Singapore Tax Act inline with international standards. 

A key proposal in this Bill is the introduction of taxation on capital gains made from the sale of foreign assets, after 1 January 2024, where the proceeds are received in Singapore without the company having sufficient economic substance in Singapore.  

Section 10L, if enacted by parliament, is to align Singapore with the European Union Code of Conduct Group guidance in respect to these types of transactions.

Companies Affected by the New Legislation

Currently Singapore does not have a capital gain tax regime – meaning that profits derived from capital transactions, such as the sale of real estate, equipment, rights are exempt from taxation. 

The absence of capital gains tax has made Singapore a popular location for companies to hold assets which are based outside of Singapore and exploited for the benefit of the consolidated group. It is important to note that this provision only applies to Singapore companies which are part of a wider consolidated group. Meaning that the use of Singapore as a jurisdiction to establish a special purpose vehicle company may still be appropriate. 

The key points regarding the application of the provision are:

1. The Singapore company which has disposed of the foreign asset must be part of a consolidated group. The company will be a member of a consolidated group if its financial accounts are consolidated by the parent entity.
2. The group in question must have at least one member which operates its business outside of Singapore. 
3. The foreign capital gain is either: 
   • Remitted to a Singapore bank account; or 
   • Applied against any debt incurred in relation to the operations carried out in Singapore; or 
   • The value of any immovable property brought to Singapore which has been acquired using the proceeds from the capital gain.
4. Provision for IRAS to apply the market value to a transaction where it deems that the disposal of the asset was not undertaken on an arm’s length basis.

Exclusion of Some Industries and Exemptions

As a major commercial hub in the world, the proposed Bill does provide for the exclusions of some industries (e.g. financial) and Groups which have been awarded concessionary or exempt tax status. 

Where a company does not fall into these exemption categories, the Bill does define an “excluded entity”, which would not be subject to this change. This definitional exclusion is where the economic substance test comes into play. 

The definition allows for pure equity holding companies, and non-pure equity holding companies. A pure entity holding company’s main function in the group is to hold shares and derive income from dividends and the disposal of shares. 

If the company is a pure equity holding company, to be excluded from Section 10L, it must demonstrate that:

1. The company complies with its annual lodgement obligations, and 
2. The operations are managed and performed in Singapore. 

For a non-pure equity holding company, there are additional conditions to satisfy:

1. The company carries on a trade in Singapore; and
2. Operations are managed and performed in Singapore; and 
3. There is sufficient economic substance in Singapore taking into account: 
   • The number of employees in Singapore performing the operations; 
   • The qualifications and experience of the employees in Singapore; 
   • The amount of business expenditure incurred in Singapore relative to its income; 
   • Whether key business decisions are made in Singapore. 

Should the Bill pass as drafted, a greater emphasis is required on multinational companies to ensure that they establish themselves appropriately in Singapore, with an office, employees, and senior management. Demonstrating the significance of the Singaporean operations will be key to ensuring that concession tax regimes are accessible. 

It should be noted that the introduction of Section 10L is primarily an anti-avoidance measure and not a hindrance to the many businesses that choose to expand to or establish operations in Singapore.