UAE Tax System vs On Shore Jurisdictions

Following our experience with the UAE tax system it can be derived that it is a very well thought of system similar to other onshore jurisdictions like the United Kingdom and Cyprus, for example. The methodology of the system as well as its application is reasonable for any tax practitioner who has been exercising the profession for some time.

The UAE has written carefully its tax laws and regulations in a simple and coherent manner. Although it follows the lines of other financial centres its taxation is significant lighter than mot developed countries but in some cases heavier than offshore jurisdictions.

Similarities of the UAE taxation system:

• Notion of sole trader

• Notion of partnerships

• Notions of groups and group reliefs, branches

• Notion of management and control

• Exempted activities from corporation tax

• Taxable profit vs accounting profit

• International substance rules

• Transfer pricing and arms length tax treatments

• Application and handling of Corporation Tax and VAT

• Electronic filing submissions and handling of tax returns

• Personal Tax Returns for majority of individuals and for almost all entities

• Preparation of financial statements under IFRSs

• Member of the OECD and compliant with international tax guidance

Main Differences

• Tax free payroll related remuneration

• Tax free small business relief and targeted profitability (less than AED 375,000 is tax free)

• More generous tax allowances for companies

• Generous application of market rate values for related party transactions

• Visa and permit requirements + physical visit for them and banking

The UAE fully complies with international tax laws and regulations and off course with the notion of management and control in order to determine whether a legal person / company should be subject to local UAE tax.