Foreign investors are attracted to the environment of business setup in the UAE as the country is known around the world as an open economy. Compared to other global economies, the UAE offers many economic benefits to foreign investors. However, the UAE is not a country without a regulatory regime or compliance requirements.
In a bid to align its economy with the global standards and international best practices, the UAE has implemented many compliance requirements. It all started in 2018 when the UAE introduced the Value Added Tax (VAT) at 5%. It was followed by Anti-Money laundering and Combatting Financing of Terrorism (AML-CFT), Economic Substance Regulations (ESR) and Ultimate Beneficial Ownership (UBO) laws. Moreover, the corporate tax on business profits will take effect in the UAE from June 2023 onwards.
Against this backdrop, investors who wish to start a business in Dubai or any other emirate should have a basic understanding of the major compliance requirements. It’s also important to note that most of these reforms have been welcomed by the business community and accelerated the business growth of entities. Business setup consultants in Dubai can help you comply with all of these regulations in the proper way. Here is a list of some of the major regulatory requirements you must meet while setting up a company in the UAE:
1. Value Added Tax
The landscape of business setup in the UAE witnessed a drastic change when the government introduced the VAT in 2018. Businesses must register for VAT if their total value of taxable supplies and imports exceeds the mandatory threshold of AED 375,000. Businesses can also opt for voluntary VAT registration if the total value of their taxable supplies and imports exceeds AED 187, 500. Federal Tax Authority (FTA) is the competent authority that regulates taxation in the UAE.
If you are a VAT registrant, you need to comply with VAT obligations such as VAT return filing, maintenance of VAT records, issuance of tax invoices etc. Moreover, a VAT registrant must apply for VAT deregistration if the company is under liquidation or any other situation that makes it outside the scope of VAT. Business setup consultants in Dubai that offer a one-stop solution for all services can help you with your VAT obligations.
2. Annual Audits
Mainland companies can voluntarily perform annual audits in the UAE. However, they are not required to submit the audited financial statements to any authority. Mostly, mainland companies conduct audits for the sake of investors, lenders or to detect fraud. However, companies operating in Dubai free zones are required to get their books of accounts audited annually and submit them to the authority at the time of license renewal. In the contrast, many free zones in the Northern Emirates don’t request audited financial statements for license renewal.
3. Economic Substance Regulations
You need to check whether you fall within the scope of Economic Substance Regulations (ESR) in the UAE. ESR was introduced in the UAE in 2020 to honour its commitment to the OECD Inclusive Framework towards addressing concerns of base erosion and profit shifting. As a result, companies in the UAE are required to demonstrate adequate economic substance in the UAE. Licensees that conduct relevant activities are required to comply with ESR requirements such as annual ESR Notification filing, ESR Report Submission, and meeting the Economic Substance Test. The relevant activities are Banking Business, Insurance Business, Investment Fund Management Businesses, Lease-Finance Business, Headquarters Business, Shipping Business, Holding Company Business, Intellectual Property Business, Distribution and Service Centre Business. Hefty penalties and reputation damage are the major consequences of ESR non-compliance.
4. Anti-Money Laundering & Combatting Financing of Terrorism
Financial institutions and Designated Non-financial Businesses and Professions (DNFBPs) are required to meet the requirements as per Anti-Money Laundering & Combatting Financing of Terrorism (AML-CFT) laws. They must register in the goAML system and meet other requirements such as appointing an AML compliance Officer, implementing an effective AML-CFT framework, providing AML training to employees etc. the DNFBPS are Real Estate Agents, Dealers in Precious Metals and Precious Stones, Auditors and Trust & Corporate Services Providers.
5. Ultimate Beneficial Ownership
Companies are required to disclose the details of their Ultimate Beneficial Authority (UBO) to the regulatory authority while registering their companies in the UAE. A UBO can be defined as a person who owns or ultimately controls the company through direct or indirect ownership or any person who owns at least 25% of the company’ share capital or has 25% or more voting rights or any person who has the ownership power through other means such as the power to appoint or dismiss Managers.
You are also required to maintain the Real Beneficiary Register (RBR) and Partners or Shareholders Register (PSR) to ensure UBO compliance in the UAE. If your company is under liquidation, you must hand over these registers to the regulatory authority and the liquidator or administer must maintain these registers for at least five years. Business setup consultants in Dubai can help you with UBO compliance.
6. Corporate Tax on Business Profits
As of now, the government has not issued any Cabinet Decision regarding Corporate Tax. However, it will come into effect from 2023 and a law will be issued on corporate tax before that. At present, the government plans to levy corporate tax at a 0% rate for taxable income up to AED 375,000. This tax rate is aimed at supporting small businesses and startups in the UAE. A headline tax rate of 9% will apply to taxable income exceeding AED 375,000. Business setup consultants in Dubai can help you get more clarity on the tax rates.
How can Jitendra Business Consultants Help You?
The regulations described in this article have played a key role in transforming the landscape of business setup in the UAE. A new entrepreneur must understand the nuances of each regulation to successfully run a business in the UAE. To ensure compliance, you can consult with business setup Consultants in Dubai such as Jitendra Business Consultants (JBC). JBC is a leading provider of UBO, AML-CFT, VAT, Audit, ESR and corporate tax services in Dubai, UAE. We have a team of highly qualified team of business setup consultants, auditors, tax agents and accountants who can help you meet all the regulatory requirements.