I. Introduction
The United Arab Emirates (“UAE”) has traditionally ranked among the top countries where high net worth and ultra-high net worth individuals relocate. However, since the 2020 pandemic and the rise of remote work, there has also been an influx of entrepreneurs, freelancers and other business minded people.
It is common for prosperous individuals to structure their different businesses through a holding company, due to multiple reasons. Therefore, choosing which country to set up a holding company is key.
In this article we highlight the main legal and tax reasons why the UAE is an excellent country to set up a personal holding company.
II. Reasons
1. Stable and robust legal framework
The UAE has a stable, robust legal framework which is internationally recognised. The largest multinational companies in the world have set up local entities and do business regularly. The regulators and lawmakers constantly monitor and discuss ways to improve the existing laws with the relevant stakeholders, and open public consultations before changing them.
2. Several jurisdictions within the UAE
The UAE is not a homogeneous country when it comes to legal matters. The UAE is a Federation which comprises seven Emirates. The Federation and each Emirate have legislative powers within their area of competence. In addition, there are several free zones within each Emirate, and some of the free zones have enacted separate corporate laws.
The existence of multiple jurisdictions benefits individuals, who can compare and choose the option that suits best their needs and budget. In addition, since these multiple jurisdictions compete against each other to attract investors, investors benefit from better services and stable fees.
3. Common law and flexibility
The UAE’s legal system is founded upon civil law principles, most of which are heavily influenced by Egyptian law (which in turn is influenced by French law), and upon Islamic Shari’ah.
However, some free zones such as the Abu Dhabi Global Markets in Abu Dhabi and the Dubai International Financial Centre (“DIFC”) in Dubai apply their own set of corporate laws, which usually consist of English common laws. This provides great flexibility when designing complex legal arrangements such as shareholder agreements, trusts or similar.
4. Efficient courts and dispute resolution mechanisms
The courts in the mainland UAE are relatively expeditious compared to other jurisdictions.
In addition, in some cases it is also possible to opt in to the jurisdiction of the courts of a free zone like the DIFC, where the DIFC Courts follow high standards which are internationally recognised.
It is also possible to refer a dispute to arbitration in one of the several arbitration bodies in the UAE, the most renowned of which is the Dubai International Arbitration Centre.
5. High respect for privacy
Respect for privacy is deeply ingrained within the UAE’s culture. Although certain disclosures are required pursuant to the ultimate-beneficiary owner and anti-money laundering laws, most business details remain private.
6. Low maintenance requirements
In the UAE there are economic substance regulations that apply to UAE companies which carry out any of the business activities listed in such regulations. Whilst a holding company business is included within the listed activities, the substance obligations in relation to the same are uncomplicated. Of course, every case should be analysed individually.
7. Relatively favourable to crypto currencies
The UAE was one of the pioneering countries in setting up a specific cryptocurrency regulator, the Virtual Assets Regulatory Authority or VARA in Dubai, and enacted related laws.
Whilst it is true that in practice the relationship between banks and crypto currencies is not straightforward and challenges arise from time to time, in general there is a pro-crypto attitude, and several businesses accept making and receiving payments in crypto.
8. Flexible visa policies
The UAE’s liberal visa policies have been a game-changer in attracting foreign investors and residents to the country. In general terms, it is remarkably easy and fast to obtain a UAE residence permit and live in the country – in most cases, it only takes a few weeks and a few thousand AED fees.
9. Low or even no corporate tax
The general 9% corporate tax introduced at the Federal level in 2023 is one of the lowest and most business-friendly on Earth.
In addition, the corporate tax includes several reliefs: the first AED 375,000 of taxable income (i.e. profits) are subject to a 0% rate; there is a special small business relief until 2026 for companies whose revenue does not exceed AED 3 million annually; there is a favourable participation exemption regime for dividends and capital gains; there are double tax credits in respect of taxes paid abroad if certain conditions are met; etc.
In summary, the UAE corporate tax offers several advantages for UAE holding companies.
10. No wealth tax, gift or inheritance tax
Unlike several other countries, in the UAE there is no wealth tax or gift or inheritance tax. This boosts the long-term growth of the shares of UAE holding companies, and it ensures a smooth generational transfer upon decease.
11. No personal income tax on salaries and most returns from investments
The general 9% corporate tax applies to legal entities and natural persons who carry out a business activity.
Importantly, wages and returns from personal investments and real estate investments that do not require a license, are not conducted through a license and do not otherwise constitute a business are not subject to corporate tax.
Needless to say, each case should be individually analysed.
12. Unparalleled double tax treaty network
The UAE has entered into more than 140 double tax treaties, out of which more than 120 are in force. This makes the UAE one of the countries with the most extensive double tax treaty network in the world.
Having an excellent double tax treaty network is great news for UAE holding companies, because they may be entitled to benefit from reduced or no taxes in the foreign countries, depending on the terms of each double tax treaty – think of withholding tax on dividends received from foreign participated entities, or capital gains tax when selling them.
13. Other
Other non-legal and non-tax reasons to set up in the UAE include being one of the safest countries in the world, having advanced infrastructures, being home to dozens of recognised international schools, offering a high-end lifestyle, having a stable currency such as the AED which is pegged to the USD, and being a beacon of dynamic entrepreneurs and business minded people who share their ideas and projects.
III. How can we help?
Our UAE team regularly advises clients about the legal and tax pros and cons of setting up a holding company in the UAE. They also assist with drafting the required documents, setting up the company, obtaining the residence permits for the shareholder/s and family, as well as assisting with banks.
Do not hesitate to contact us if you need any assistance.