Miscellaneous

What is a Mainland Company in UAE?

Mainland companies are legal entities registered with an Emirate authority (Department of Economy and Tourism). As a result, these companies enjoy a certain level of freedom in their operations and setup.

They can issue visas, do business freely with other companies in and outside the UAE, and potentially bid on government contracts.

According to new regulations, Foreigners can have 100% ownership of their mainland company in most activities. This is a significant change from older regulations where mainland companies needed to have a local owner with a 51% share in their company.

What is a Free Zone Company?

UAE has over 45 free economic zones also known as free zones with their own regulations and governing body known as Free Zone Authority (FZA). A free zone company is simply an enterprise registered with one of the designated economic zones in the UAE.

Free zone companies can offer their services to the global market and inside the free zones while benefitting from the zero tax policies. However, they cannot operate directly on the mainland. Moreover, it is generally faster to set up a free zone company compared to the mainland.

However, certain Free Zones have been considered by the UAE Cabinet to be outside the UAE for tax purposes. These Free Zones are known as Designated Zones. Trade conducted within or outside a Designated Zone is VAT-free, but there are certain exceptions to it.

Mainland Vs Free Zone: What’s the difference?

Here are some of the key differences between a mainland and a free zone company.

Factor	Mainland	Free Zone
Scope of business	Can operate anywhere in the UAE and internationally	Can operate internationally and within the free zone
Taxation	9% corporate tax on profits exceeding AED 375,000	Option to choose 0% tax subject to conditions, else normal scheme
Customs and Import/Export	Subject to customs duty	Exempt from customs duty
VAT	5%	Generally 5%, some zones also offer 0% VAT advantage
Physical office	Depends on the type of business license	Can have a physical or virtual office
Ownership	100% foreign ownership is allowed in specific sectors as per the latest regulations. Otherwise, a local partner with 51% ownership is required.	100% foreign ownership
Visa eligibility	No restrictions, depending on office size	Limited visas
Annual Audit	Obligatory	Depends on the free zone
Regulatory body	Department of Economic Development (DED)	Free Zone Authority (FZA)

VAT Implications

	Zones	Goods or Services	From	To	Taxability
1	Designated Free zone	Goods	Designated Zone	Designated Zone	Out of Scope
			Designated Zone	Non-Designated Free zone	VAT @ 5%
			Designated Zone	Mainland	RCM
			Designated Zone	To other countries	Out of Scope
2	Non Designated Free zone	Goods	Non-Designated Zone	Non Designated Zone	VAT @ 5%
			Non Designated Zone	Designated Free zone	VAT @ 5%
			Non Designated Zone	Mainland	RCM
			Non Designated Zone	To other countries	Zero Rated
3	Mainland	Goods	Mainland	Mainland	VAT @ 5%
			Mainland	Designated Free zone	VAT @ 5%
			Mainland	Non Designated Free zone	VAT @ 5%
			Mainland	To other countries	Zero Rated
4	From Other Countries	Goods	From Other Countries	Designated Zone	Out of Scope
			From Other Countries	Non-Designated Zone	RCM
			From Other Countries	Mainland	RCM

 

CT Implications

Mainland Companies:

In UAE, businesses earning less than AED 375,000 will not be taxed, while those earning more will be charged a 9% tax.

Freezone Companies:

With regards to the UAE Corporate Tax applicability, a Free Zone Person (FZP) can be categorized into two types.

1. Qualifying Free Zone Person (QFZP): A QFZP meets certain specified conditions as set out in the tax regulations (to be explained later in this article). A QFZP can enjoy certain tax benefits (e.g. 0% tax on qualifying income), as stipulated in the legislation.
2. Non-Qualifying Free Zone Person (NQFZP): An NQFZP, on the other hand, is a FZP that does not meet the specific conditions required to be a QFZP. As such, an NQFZP may not have access to the same tax benefits or exemptions as a QFZP.

Understanding the above two classifications is important, as it determines the tax liabilities and benefits applicable to an entity operating within a Free Zone.

Tax Rates for Free Zone Companies

Corporate Tax shall be imposed on a Qualifying Free Zone Person at the following rates:

• 0% on Qualifying Income.
• 9% on Taxable Income that is not Qualifying Income

To understand this, we should know about the different kinds of audits normally performed in UAE. Lets have a brief introduction of these.

Regulatory Audit

A regulatory audit focuses on ensuring that a company complies with the various laws, regulations, and standards set forth by the local authorities and regulatory bodies. These include compliance with:

• Federal laws and regulations: These cover laws issued by the federal government, such as labor laws, corporate governance regulations, and intellectual property laws. In the UAE, limited liability companies (LLCs) must comply with new governance and compliance regulations by December 31, 2021, according to Federal Decree Law No. 26 of 2020. Another example is the Law on Bankruptcy, which provides a framework for restructuring and insolvency procedures for companies facing financial difficulties or unable to pay their debts.
• Industry-specific regulations: Certain industries have additional regulatory requirements. For instance, the Economic Substance Regulations (ESR), require companies with relevant activities to demonstrate economic substance in the UAE.

Likewise, the Accountability and Audit Authority (ADAA) Resolution No. (1) of 2017, requires all ADAA subject entities and their material subsidiaries to comply with the resolution and follow the International Standards on Auditing (ISA) for their audits contracted after August 2017.

Statutory Audit

A statutory audit requirement in the UAE is a legal procedure that assists in determining the accuracy of a company’s financial reports and records. It is mandatory to hire a statutory audit firm in UAE to assist you in evaluating your records. In some cases, such audits are mandated by the government in order to screen and evaluate firm performance. Generally, the statutory audit requirement in the UAE helps the general society by encouraging financial accountability. It helps in ensuring that companies present valid and exact financial data to the general population. The statutory audit inspects data, such as accounting records, bank balances, and related economic exchanges.

The benefits of maintaining compliance with audit requirements in UAE are as follows;

• It improves the reputation of the company.
• The statutory audit report enhances the believability and credibility of the firm.
• It helps customers in assessing the company’s fiscal position before doing any business.

Performance Audit

A performance audit assesses the efficiency, effectiveness, and economy of a company’s operations, processes, and management. These types of audits are usually conducted by internal auditors or external audit firms with expertise in performance auditing.

Key features of a performance audit include:

• Scope and Objectives: The performance audit is customized to the specific needs of the organization and may focus on areas such as cost management, process improvement, risk assessment, and internal control effectiveness.
• Internal Control Evaluation: The audit evaluates the internal control mechanisms and identifies any weaknesses that could lead to inefficiencies or potential risks.
• Recommendations: The audit report provides actionable recommendations for improvement, enabling the organization to enhance its performance and achieve its strategic goals.

Is Audit necessary for companies in the UAE?

Audit of accounts is mandatory for Free zone companies (FZCO) and Free Zone establishments (FZE) but for some local or foreign companies, it may not be mandatory. It is important for the companies to maintain the accounting reports and documents to finalize the audit.

The commercial companies law states that the audit of accounts is mandatory for mainland companies. Every company must appoint an auditor to auditor for auditing their books of accounts authorized and licensed auditor, but many companies are not mandated to follow the requirements.

Legal Requirements

• Some of the free zone companies are required to submit the audited financial statement to the authority such as Dubai Multi Commodities Centre (DMCC), Dubai World Central (DWC), Dubai Airport Free Zone (DAFZA), Jebel Ali Free Zone (JAFZA), Dubai Silicon Oasis (DSO and Dubai International Financial Center (DIFC), etc.
• It is mandatory for foreign companies to submit audit reports and audited financial statements of the branch of foreign companies registered in the UAE every year.
• Audited financial statements of companies under liquidation are necessary to prepare the liquidator’s audit report.
• The government authorities such as ministerial departments, municipalities, and insurance authorities also demand the companies submit their audited financial statements.

Management purposes

• Some of the UAE companies get their books of accounts audited to understand their financial position, assess the progress of the business, and also to evaluate the performance of the entity.
• Sometimes companies only hire bookkeepers to update their day-to-day activities, but the auditor finalizes the books of accounts and also provides the necessary inputs for management decisions.
• The business owners also seek advice on the net worth of the business, so they get their books audited every year to have a clear picture of the business to present to the shareholders.

 

Third-Party Requirements

• Lenders such as non-banking financial institutions and banks insist companies get their books of accounts audited by an audit firm.
• Dealers and suppliers also ask the companies to submit audited financial statements to ensure the financial creditworthiness of the companies to deal with them.

How can Digits help you?

It is apparent that auditing your financial statements and books of accounts is mandatory in the mainland and some parts of the free zones in the UAE. Companies must appoint licensed auditors for auditing the books of accounts and financial statements. Companies that do not present the audit reports get penalties from the authorities. Digits provides a wide range of auditing services in accordance with the client’s business needs. Auditors at Digits are committed to providing the best auditing services in the UAE in compliance with the latest updates. Digits is a professionally equipped firm with relevant industry experience from different ends.

No matter whether you are located in the mainland or the free zone, we got you covered for your auditing requirements. Feel free to consult the expert teams of Digits about auditing services and any confusion regarding internal or external auditing. If you are looking for approved auditors in UAE, then don’t hesitate to us.

We advise you to read through this guide to fully understand the steps required on how to incorporate a company in Dubai. The process of establishing a company in the UAE involves only a few simple steps, in all seven emirates.

Steps involved in incorporating a business.

Starting a business in ordinary ways involves a series of steps, including:

1. Identifying a business activity
2. Selecting an appropriate legal form
3. Registering the trade name
4. Applying for an initial approval
5. Drafting a Memorandum of Association and local service agent agreement
6. Select a business location
7. Get additional government approvals
8. Submit documents and pay fees

Identifying the business activity

Business activity is the basis for selecting the legal form and type of licence, whether commercial, industrial or professional, etc. There are six types of licences. They are: industrial, commercial, professional, tourism, agricultural and occupational.

Depending on your business goals and activities, Digits will recommend the most suitable business entity.

Select the legal form

The legal form depends mainly on the business requirements. Moreover, the legal form is basis for identifying applicable laws and regulations. In the UAE, an investor can select one of these legal forms:

• General partnership

• Limited partnership

• Limited liability company (LLC)

• Public joint stock company (PJSC)

• Private joint stock company (PrJSC)

• Civil company

• Local company branch

• GCC company branch

• Foreign company branch

• Free zone company branch

• Sole establishment

• Holding companies.

Register the trade name

A trade name distinguishes one business from another. It also reflects the nature and the form of the business. An investor can apply for the trade name through the economic department in each emirate, through its website or mobile application.

Provisions for selecting the trade name:

The trade name must:

• be followed by the business structure acronym (legal form of the company) such as: LLC, EST, PJSC, PrJSC
• not violate the public morals or the public order of the country
• be compatible with the required type of activity and the legal status of the company or business entity
• not contain names of any religion, or governing authority, nor names or logos of any external bodies
• not have been previously registered

Initial approval

An initial approval is the UAE Government’s ‘no objection’ towards a particular business being established in the country. This approval also allows the investor to proceed with the next steps to set up a business and for the authorities to issue the license. It does not, however, grant the investor permission to run the business or practice the business activity.

MOA and LSA

A Memorandum of Association (MOA) is required if the legal form of the company is a civil company, limited liability company, public shareholding company, or private shareholding company. A local service agent agreement (LSA) is required if it is a sole proprietorship.

Select a business location

All businesses in the UAE must have a physical address to operate from. The company premises and location must comply with requirements specified by the emirate’s Department of Economic Development, as well as zoning policies and regulations of local municipalities or other competent authorities. In Dubai, the tenancy contract for office or warehouse space has to be registered through the Dubai Land Department’s Ejari portal.

Get additional government approvals

In some cases, additional approvals from government entities governing certain business activities are required.

Submit Required Documents

All the above documents including lease agreements need to be submitted after getting attested.

How can Digits help you?

Digits can recommend the most suitable business entity for you Once ready, Digits will proceed to draft and notarize the company’s Memorandum and Articles of Association. Corporate forms and certificates will then be filed with the Dubai Department of Economic Development for approval. To comply with Dubai’s laws, Digits will then assist you to register for employment purposes and obtain a VAT number with the Federal Tax Authority. If you are looking to apply for licenses (trading, commercial, industrial and professional), Digits will further advise on the requirements. We will also assist in securing relevant business licenses and registrations with the Department of Economic Development. You can be confident you are in the best hands when Digits undertakes your Dubai company’s accounting and tax services.

Digits will timely prepare your firm’s financial statements, corporate tax returns and bookkeeping on your behalf. Digits will complete all annual filings and tax returns for your company before the stipulated deadlines set out by the government.

Additionally, Dubai’s Commercial Law also mandates that businesses continually perform audits. If necessary, we will assist you in obtaining a reliable accountant. This is to ensure that you can continue to legally conduct business with your Dubai entity, while staying compliant to regulatory obligations.

Ready to incorporate company in Dubai? Contact us to find out more about how to incorporate a company in UAE.

Since UAE follows residency-based taxation, where resident entities are taxed with respect to their worldwide income, double taxation may occur where income is taxed in both the source country and resident country. To avoid this UAE has entered into Double Taxation Avoidance Agreement (DTAA) with multiple countries.

An updated list of DTAs can be found on the Ministry of Finance’s website at:

https://mof.gov.ae/wp-content/uploads/2023/08/Avoidance-of-Double-Taxation-Agreements1.pdf

Public and private companies, investment firms, air transport firms and other companies operating in the UAE, as well as other types of UAE residents, may benefit from Avoidance of Double Taxation Agreements (“DTA”).

In order to benefit from a DTA, a person generally requires to provide a TRC to prove that the person is resident in another country and subject to tax in that country. The TRC is a certificate issued for eligible government entities, companies and individuals to take advantage of agreements of double taxation avoidance on income to which the UAE is a signatory.

Eligibility Criteria:

Natural persons

The applicant must have been a resident of the UAE for at least 180 days. Also an annual lease agreement officially documented by the competent authorities, such as EJARI in Dubai, municipalities in other Emirates and free zone authorities must be attached to the application.

The following documents are required for individual TRC applications:

• Passport Copy
• UAE Residence Visa Copy
• Emirates ID Copy
• A certified copy of (residential) lease agreement or Tenancy Contract Copy (an annual lease agreement officially documented by the competent authorities, such as EJARI in Dubai, municipalities in other Emirates and free zone authorities)
• Source of income (e.g. Salary Certificate, Trade License etc)
• Validated bank statements for 6 months from a local UAE Bank.
• A report from the General Directorate of Residency and Foreigners Affairs or Federal Authority for Identity and Citizenship (ICA) specifying the number of days the resident has stayed in the UAE (The applicant must have been a resident of the UAE for at least 180 days).
• Tax forms (if any) from the country in which the certificate is to be submitted. If the Tax form requires FTA Signature and Stamp, the user is requested to send the original form to FTA via courier with return service. The applicant should fill and sign the fields related to his details and information for FTA to attest the form.

Legal persons

In order to be eligible to apply for a TRC, the legal person must have been established for a period of at least one year. Financial accounts must be audited or prepared by an accredited audit firm and attached with other required documents to the application. The report must be certified and stamped by the audit firm. The audited financial report to be attached to the application must cover the year for which the certificate is requested. If the certificate is requested for the present year, the audit report must be covering the past year.

The following documents are required for individual TRC applications:

• A copy of the trade license and directors/shareholders’ attachment.
• Establishment contract certified by official authorities (if it is not a Sole Company).
• A copy of the legal person’s owners/partners/directors’ passports
• A copy of the legal person’s owners/partners/directors’ Emirates IDs
• A copy of the legal person’s owners/partners/directors’ permits of residence
• A certified copy of the audited financial accounts (Financial accounts must be audited or prepared and stamped by an accredited audit firm and must cover the year for which the certificate is requested. If the certificate is requested for the present year, the audit report must be covering the past year).
• Validated bank statements for 6 months from a local UAE Bank.
• A certified copy of the lease agreement.
• Tax forms (if any) from the country in which the certificate is to be submitted. If the Tax form requires FTA Signature and Stamp, the user is requested to send the original form to FTA.

How can Digits help you?

Digits has competent tax experts who can assist you in your tax-related activities such as tax registration, correspondences with FTA, obtaining certificates, determining tax treatments, tax accounting, formatting tax invoices, preparing tax returns, calculation of outstanding tax, filing of tax returns, tax record maintenance, periodic tax reviews, compliance checks, understanding the recent developments in tax regulation, arranging training sessions for employees, tax planning, assessing the impact of tax on cash flows, compiling tax policies and procedures, ensuring adequate internal controls in tax-related processes, tax system implementation, preparing files for FTA audits and more such functions ensuring compliance with the tax rules.

This brings us to the conclusion of the discussion on tax residency certificates under UAE law. Do you need help in obtaining a Tax Residency Certificate? Feel free to contact Digits.

Corporate income tax (CIT) rates
Headline CIT rate (%)	9
Corporate income tax (CIT) due dates
CIT return due date	Under the UAE CT Law, all taxable persons are required to file a corporate tax return within nine months from the end of the relevant tax period.
CIT final payment due date	Under the UAE CT Law, all taxable persons are required to pay corporate tax within nine months from the end of the relevant tax period.
CIT estimated payment due dates	Under the UAE CT Law, there is no requirement of estimated/advance tax payments.

 

 

Value-added tax (VAT) rates
Standard VAT rate (%)	5
Withholding tax (WHT) rates
WHT rates (%) (Dividends/Interest/Royalties)	0% WHT in case of certain categories of UAE-sourced income to be specified by way of a Cabinet decision.

 

Capital gains tax (CGT) rates
Headline corporate capital gains tax rate (%)	Same as UAE CT rates, where participation exemption is not available.
Headline individual capital gains tax rate (%)	NA
Net wealth/worth tax rates
Headline net wealth/worth tax rate (%)	NA

 

Inheritance and gift tax rates
Headline inheritance tax rate (%)	NA
Headline gift tax rate (%)	NA

NA stands for Not Applicable (i.e. the territory does not have the indicated tax or requirement)

NP stands for Not Provided (i.e. the information is not currently provided in this chart)

All information in this chart is up to date as of the ‘Last reviewed’ date on the corresponding territory Overview page. This chart has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice.

How can Digits help you?

It is essential for entrepreneurs planning to incorporate or expand their business in the UAE to keep up with the latest tax regulations and avoid any unwanted fines or penalties. Remembering due dates can be a huge burden and will divert your focus from your business. What you need is a support from an expert team like us who will take care of all of your compliance requirements on time. We provide VAT and CT compliance, audit and assurance, financial advisory and other corporate services. Contact us immediately to know how we can be of help.