DUBAI: A TRUE IFC*

by George Philippides CEO

1

DUBAI: A TRUE IFC

by Costas Ioannou - Director

2

THE PALM DUBAI

One of the largest projects of its kind, built in 4 years, 100 million cubic meters of rock and sand.

Added 520km of coast to Dubai.

The vision of the Ruler of Dubai Mohamed Bin Rasheed Al Maktoum

3

BURJ KHALIFAH

4

Tallest building in the world at 828.9 meters

UAE

• Federation of 7 Emirates: Dubai, Abu Dhabi, Sharjah, Fujairah, Ras Al Khaimah, Umm Al Quwain and Ajman • Formed in December 1971 after 100 year of British rule (1892-1971) • Biggest and wealthiest Emirates are Abu Dhabi and Dubai • Dubai has taken the strategic decision to diversify in the 1980s, established Emirates Airlines in 1985, today Dubai’s income from oil and gas represents only 3% of the economy • Tourism, Travel Hub, Trade centre, Financial Centre • Developed Economy – Ranked amongst the top 20 countries worldwide for doing business • Excellent Infrastructure – Private schools, healthcare, entertainment, weather, logistics •Dubai was designated to host EXPO 2020

5

6

REASONS FOR DOING BUSINESS

• Rebust, open and competing economy

• Security and stability

• Tax efficient business environment

• Proximity to growth regions

• Intellectual property protection

• Multinational human resources

• Solid infrastructure

• Efficient government services

• Future potential for the GCC

7

WHAT DUBAI OFFERS

• UAE is a white listed jurisdiction

• Secrecy, asset protection and no international exchange of information

• Tax free environment

• Excellent network of Double Tax Treaties

• Ideal as Global headquarters centre

• Distinguished and unique lifestyle

• Talented and diverse labour pool

• World class logistics and IT infrastructure

• Strategic location on the trade routes of East and West

8

TAX INCENTIVES

• No Corporation Tax

• No Personal Tax

• 100% Ownership in Free Zones

• No foreign exchange controls, trade barriers or quotas

• No restrictions on repatriation of funds

• Strong investor incentives and protections

• Easy access to key decision makers

9

TYPES OF UAE ENTITIES

• Limited Liability Company (LLC)

• Branch of Foreign Company

• Free Zone Entity (FZE)

• Representative Office

• International Business Company (Offshore)

10

LIMITED LIABILITY COMPANIES (LLC)

• Min 2 and max 50 shareholders

• Foreign voting rights limited to 49%

• Benefits from UAE Tax Treaty network

• No tax

Features for risk mitigation:

• Reduction of profit allocation in favour of local partner in MoA

• Loan to LLC by Finance Co

• Management fee

• Commission for guarantee fee

• “Active” involvement of local partner

• Shareholder’s commitment agreement

• Life insurance policy – Holdco FZE as sole beneficiary

• Power of Attorney in favour of individual designated by Holdco FZE

11

BRANCH OF FOREIGN COMPANY

• Commercial/industrial activities

• But some professional activities too!

• Local agent

• Office premises are required

• 100% foreign ownership

• No tax

12

• Themes vs Multi-purpose

• There are more than 30 different Free Zones in the UAE. DMCC, Jebel Ali, Media City Internet City, WTC, Silicon Oasis, RAK Free Trade Zone, DIFC etc

• Limited Liability (FZE, FZCO, FZLLC) irrespective of activity

• May be 100% foreign owned

• Offices premises required

• UAE trading only through a local distributor

• May benefit from UAE tax treaty network

• Possible to own real estate (JAFZA)

• No tax

FREE ZONE ENTITIES

13

REPRESENTATIVE OFFICE

• May undertake promotional and marketing activities on behalf of the parent company

• Not permitted to trade

• No tax

14

• Limited Liability (Ltd)

• Corporate shareholding

• May be 100% foreign owned

• Inability to deploy a commercial activity in the UAE

• No office requirement

• Nominee structure possible

• Available through 3 authorities: Ras Al Khaimah Free Trade Zone (RAK FTZ),

• , Jebel Ali Trade Zone Authority (JAFZA)

INTERNATIONAL BUSINESS COMPANIES (OFFSHORE)

15

16

POPULAR OFFSHORE JURISDICTIONS

Anguilla Vanuatu Netherlands Antilles San Marino

Andorra British Virgin Islands Niue Saint Vincent and the Grenadines

Antigua and Barbuda Gibraltar Cayman Islands Saint Kitts and Nevis

Aruba Grenada Cook Islands St. Lucia

Bahamas Liberia Turks and Caicos Islands

Isle of Man

Belize Marshall Islands Palau Channel Islands

Bermuda Montserrat Panama Seychelles

Brunei Darussalam Nauru Samoa

Most to join OECD disclosure agreements or blacklisted

TYPICAL COSTS TO SET UP

LLC - € 40.000,00 (Year 1)

Incl. government fees, out-of-pocket expenses, professional fees, local partner fee

Branch of Foreign company €20.000

Government fees, Out-of-pocket expenses, Professional fees, Local sponsor fee

Free Zone Company

€7.000 – 15.000 depending on freezone (RAK Freezone – JAFZA Freezone)

International Business Company (offshore)

RAK FTZ or RAKIA company €2.400 including government fees and out of pocket, corporate nominee shareholder(s) and/or directors possible

JAFZA €3.400 including government fee (can hold UAE property)

Nominee services – Shareholder, DirectorsX2, Secretary, Registered Office – €2.600

Bank account opening - €550 Local companies, €650 Foreign companies

17

STATUTORY FEATURES OF LEGAL ENTITIES

18

Local Limited Liability Company (“Local LLC”)

Free Zone Limited Liability Company (“FZE”)

International Business Company (“IBC”)

Ownership At least 51% of the shares must be held by a UAE national (the “local partner”)

100% foreign ownership 100% foreign ownership

Minimum number of Shareholders

2 1 1

Minimum capital AED 1 AED 10,000 - 1,000,000, depending from Zone to Zone

AED 1

Capital pay-up at Inception Not required Depending from zone to zone Not required

Nature of shares Registered Registered Registered

Directors: Minimum required: Director(s)location:

1 Not allowed At least one Director must be UAE resident

1-2, depending on zone Not allowed At least one Director must be UAE resident

1 Allowed No restriction

Audited accounts Required. To be filed yearly at the time of licence renewal

Required. To be filed yearly at the time of licence renewal

Not required

Statutory Features of Legal Entities

STATUTORY FEATURES OF LEGAL ENTITIES (Cont’d)

19

Local Limited Liability Company (“Local LLC”)

Free Zone Limited Liability Company (“FZE”)

International Business Company (“IBC”)

Name Prior approval required, some wording sensitive. Ends with “LLC”

Prior approval required – some wording sensitive. Ends with “FZE”, “FZC” or FZ-LLC”

Prior approval required, some wording sensitive. Ends with “Ltd”

Time frame for incorporation 4 weeks upon receipt of full documentation

2-8 weeks upon receipt of full documentation, depending on the zone

1-3 days upon receipt of full documentation

Language Arabic/English English English

Legalization process of POA and corporate documents

Legalization and super-legalization Legalization and super-legalization Apostille sufficient for RAKIA. Legalization and super-legalization mandatory for JAFZA

Registered office Mandatory tenancy agreement Mandatory tenancy agreement Registered Agent

Shelf companies Not available Not available Available

Statutory Features of Legal Entities

Limited Liability Company (“LLC”) Free Zone Entity (“FZE”) International Business Company (“IBC”)

Briefly •Until the introduction of free zones, the most common form of corporate investment vehicle •Mandatory involvement of a local partner

•Corporate structure with physical presence allowing 100% foreign ownership

•Flexible dematerialized corporate vehicle designed on the BVI model, but benefiting from UAE’s substance and credibility

Activity •Any activity •Ability to conduct any authorized commercial activity in the UAE and abroad

•Any activity as allowed by the Zone •No restriction to conduct services •Local agent required

•Any activity is allowed •Ability to conduct any authorized commercial activity aboard •Hold assets (including real state) abroad and in the UAE •Operate a bank account abroad and in UAE •Inability to deploy a commercial activity in the UAE

Suitability •Trading in the UAE and abroad •Commercial brokerage in the UAE and abroad •Manufacturing/industrial activities for prime distribution outside the UAE and larger Middle East countries

•Trading outside the UAE •Consultancy services head/regional office operation •Group structuring •Manufacturing/industrial activities for prime distribution outside the UAE and larger Middle East countries

•Trading outside the UAE •Material assets holding (including real estate) in the UAE and abroad •Immaterial assets (eg IP) holding in the UAE and abroad •Head/regional office operation operating a bank account in the UAE and abroad

COMPARISON OF LEGAL ENTITIES

20

COMPARISON OF LEGAL ENTITIES (Cont’d)

Limited Liability Company (“LLC”) Free Zone Entity (“FZE”) International Business Company (“IBC”)

Advantages •Not subject to tax in the UAE •Credibility in high profile trading operations •Ability to physically trade in the UAE and abroad •Stable environment •White listed jurisdiction •Ability to arrange local residence visas

•Not subject to taxes in the UAE •Credibility in high profile trading operations •Stable environment •White listed jurisdiction •Ability to arrange local residence visas

•Not subject to taxes in the UAE •Flexible legislation •Low annual fees •Stable jurisdiction •White-listed jurisdiction

Remarks •Accounts must be audited and filed yearly •Heavier constitution and operating requirements (as opposed to free zones) •Most expensive structuring option

•Accounts must be audited and filed yearly •Heavier administration requirements (as opposed to IBCs) •Higher constitution and maintenance costs as compared to an offshore entity •Have to rely on a duly licensed local agent

•Relatively lower credibility •Difficulties to obtain banking facilities •Inability to arrange local residence visas

Tax status •Not subject to corporate and withholding tax. •Total tax and duty exemption •Total tax and duty exemption

Double Tax Treaties, special treaties

•Full benefits of DTT •Full benefits of special treaties (eg GAFTA).

•Full benefits of DTT •Considered non-resident for tax purpose, IBCs cannot avail themselves of treaties’ benefits

Disclosure •Identity of shareholders and officers is publicly available.

•Accessibility to information will vary depending on each zone’s practice.

•Information is not public. •Court Order required for disclosure

21

QUALIFICATION FOR DTT AND SUBSTANCE

From the UAE perspective

• Physical presence

• Valid Trade License

• Paid-up capital

SUBSTANTIATION CHALLENGES Effective Management

• Key decisions are taken in the desired jurisdiction

• Appropriate board expertise Local professional support Have non-tax reasons for operating out of the jurisdiction

22

UAE corporate vehicles can be used as an intermediate holding company in the following circumstances:

For groups, investing outside UAE, aiming at dividend income streams

To hold overseas subsidiaries

To benefit from favourable withholding tax provisions

Where a jurisdiction is required that does not have CFC rules

To avail of the favourable repatriation provisions under UAE tax law

Suitable for any fund or investment vehicle, as there is no tax on transactions in securities

Where it may be important to achieve a tax free unwind in the future

To hold real estate companies for a tax free disposal of property

To hold intellectual property companies

UAE can be used as the location for the ultimate holding company, for instance, for a group that is relocating to a new jurisdiction or on formation of a new publicly-traded corporation with international operations.

UAE CORPORATE STRUCTURES

23

UAE NETWORK OF DTT

Recipient Dividends % Interest % Royalties %

Algeria - - 10

Armenia -/3 - 5

Austria - - -

Azerbaijan 5/10 -/*7 5/10

Belarus 5/10 5 5/10

Belgium -/5/10 -/5 -/5

Bosnia & Herzegovina -/5/10 - 5

Bulgaria -/5 -/2 -/5

Canada 5/10/15 -/10 10

China 7 7 10

Cyprus - - -

Czech Republic -/5 - 10

Egypt - 0/10 10

Estonia - - -

Finland - - -

France - - -

Georgia - - -

Germany 5/10/15 - 10

Greece -/5 -/5 -/5

Hong Kong n/a n/a n/a

India 10 -/5/12.5 10

Indonesia 10 -/5 5

24

UAE NETWORK OF DTT (Cont’d)

Recipient Dividends % Interest % Royalties %

Ireland - - -

Italy 5/15 - 10

Jordan n/a n/a n/a

Kazakhstan 5 10 10

Korea, Republic of 5/10 -/10 -

Lebanon - - 5

Libya n/a n/a n/a

Luxembourg 5/10 - -

Malaysia 10 -/5 10

Malta - - -

Mauritius - - -

Mongolia - - 10

Morocco -/5/10 -/10 -/10

Mozambique - - -/5

Netherlands 5/10 - -

New Zealand 15 -/10 10

Pakistan 10/15 -/10 12

Philippines -/10/15 -/10 10

Poland -/5 -/5 5

Portugal 5/15 -/10 5

Romania -/3 -/3 3

Seychelles - - 5

25

UAE NETWORK OF DTT (Cont’d)

Recipient Dividends % Interest % Royalties %

Singapore 5 -/7 5

Spain 5/15 - -

Sri Lanka -/10 -/10 10

Sudan - - 5

Switzerland 5/15 - -

Syria - -/10 18

Tajikistan - - 10

Thailand 10 10/15 15

Tunisia - 2.5/5/10 7.5

Turkey 5/10/12 -/10 10

Turkmenistan - - 10

Ukraine -/5 -/3 -/10

Uzbekistan -/5/15 -/10 10

Venezuela 5/10 10 10

Vietnam -/5/15 -/10 10

Yemen - - 10

26

CONFIDENTIALITY/EXCHANGE OF INFORMATION

UAE Central Bank

• committed to international AML standards

• limited exchange of information

Dubai Financial Services Authority (DFSA) applicable in the DIFC (Regulated Freezone)

• has established AML, CDD and Data Protection System

• Entered in exchange of information MoUs with about 20 regulators

• DIFC laws and regulations based on UK common law, established DIFC courts

Mainland UAE and Freezones

• Deportment of Economic Development (DED) or Freezone Authorities • Have strict compliance rules, all shareholders and directors go through KYC checks • All Businesses submit business plans and intended activities and projected Turnover

and Profits • Information held is confidential with the authorities and not shared in any public

register 27

HNWI RESIDENCY: AT A GLANCE

• Total tax exemption for individuals

• Straight forward procedure

• Ease to maintain and substantiate the Residence Permit

• Low processing and maintenance costs

• High standards of living

• Free Zones or Department of Economic Development able to issue Tax Residency Certificates for Companies and Individuals, certain documents required: incorporation certificate, bank statements for 3-6 months, Audited accounts.

Options for obtaining residence:

• Real Estate Investment

• Corporate Structure

28

REAL ESTATE INVESTMENT

Multiple Entry Residence Permit – MERP

Conditions

• Property fit for habitation

• Title deed issued in the name of the applicant

• Property value > AED 1 Million (€ 200.000)

• Revenues greater than AED 10,000.00 / month (€2.000)

Downsides

• 1 property – 1 resident permit rule

• Discontinued in case of transfer

• Corporate ownership not allowed

29

CORPORATE STRUCTURE

Maintenance

• Licence renewal every 2 years

• Enter the country once every 6 months

Connecting points

• Tenancy agreement

• UAE ID card

• Tax residence certificate

• Local personal bank account

• E-gate card

• Mobile phone subscription

30

OUR SERVICES

PO Box 333641

Bayswater Tower

Al Burj street South

T+ 971 455105 693 / F +971 4 276 7612

Costas Ioannou, Director: cioannou@oneworldmideast.net

George Philippides, CEO: gphilippides@oneworldmideast.net

www.oneworldmideast.net

31

• Corporate and Trust • Tax and Legal

• Financial Advisory • Global Compliance

• Business Advisory • Family Office

SAMPLE TAX PLANNING STRUCTURES

A

MITIGATING UAE SHAREHOLDING

100%

49% Loan

51%

HOLDCO FZE (UAE)

Foreign Company

LLC (UAE)

Finance Co UAE Share- holder

B

STRUCTURING INVESTMENT

WITH UAE INTERMEDIATE COMPANY - 1 Dividend = tax exempt / no WHT

Capital gains on share transfer = tax exempt

Dividend = reduction of WHT

from 35% to 5%

Shareholder Outside the UAE

UAE Co

Participation in Swiss Co

•No WHT on distribution of dividends by the UAE

Co to the shareholders in/outside the UAE

•UAE Co’s dividend income from its investment in

Swiss Co is exempt

•Swiss Co dividends are taxed at 5% in

Switzerland

•When UAE Co transfers shares of Swiss Co, the

capital gains are not taxed in Austria or the UAE

C

STRUCTURING INVESTMENT

WITH UAE INTERMEDIATE COMPANY - 2 Dividend = tax exempt / no WHT

Capital gains on share transfer = tax exempt

Dividend = tax exempt

Shareholder Outside the UAE

UAE Co

Participation in Austrian Co

D

•No WHT on distribution of dividends by the UAE

Co to the shareholders in/outside the UAE

•UAE Co’s dividends, interest, royalties from

Austria Co are exempt

•Austrian Co dividends and interest are exempt.

If not Treaty would be withheld and 25% and

20% rate

•When UAE Co transfers shares of Austrian Co,

the capital gains are not taxed in Austria or the

UAE

STRUCTURING IP INVESTMENT

WITH UAE INTERMEDIATE COMPANY

IP assets

- UAE Co’s dividends, interest, royalties and

capital gains are 100% tax exempt Licensing Royalties/ Capital Gains

- Royalty payments are deductable at licensee level

- Royalty payments made with applicable withholding

tax with tax treaty countries

Parent Company

UAE Co

Operating Company

E

NOMINEE STRUCTURE

WITH UAE INTERMEDIATE COMPANY Dividend = tax exempt / no WHT

Capital gains on share transfer = tax exempt

Dividend = reduction of WHT

as per applicable treaty %

Nominee Shareholder,

Corporate Directors

UAE Co (IBC)

Company in a Treaty Country

F

•No WHT on distribution of dividends by the

UAE Co to the shareholders in/outside the

UAE

•UAE Co’s dividend income from its

investments in operating Co is exempt

•Operating Co dividends are exempt

•When UAE Co transfers shares of

Operating Co , the capital gains are not

taxed in Operating Co Country or the UAE