Setting up a company in Dubai common questions/problems/misconceptions

Although it is relatively easy to setup a company in Dubai, it is very difficult not to pay UK taxes. The problem is when an individual is looking to setup a business in Dubai to reap the generous tax benefits the individual or the business cannot be connected to the UK without incurring UK tax.

Common questions/problems/misconceptions

Living in the UK whilst controlling a company aboard

If you continue to live in the UK and control a company abroad (Central Management and Control can apply), the UK will want to tax that foreign company in the UK.  If the company is controlled from abroad, then it is usually tax a resident abroad with no UK tax.

Taxing rights on UK source income

Even though you are abroad, the UK retains taxing rights on certain UK source income eg property income, trades, self-employment, employment and directorships. Even CGT in relation to UK property.

Trading from UK premises

If the company trades from premises in the UK, even though you and the company are abroad, the company will have a permanent establishment in the UK and can be taxed here.

Working in the UK

If you work and perform duties in the UK as a self-employed person, employee or director you can be taxed on your UK earnings.

UK company exit charge

If your UK company can leave the UK, there is an exit charge to calculate and pay.

What if my company can’t leave the UK?

If your UK company cannot leave the UK, it can continue to pay you a salary (which might be gross of tax), and it can contract to buy services from abroad. However, the arrangements should be at a commercial rate, if there is an excessive amount paid for services the UK company will not get a tax deduction.

UK VAT

Even though you may be abroad and sell to people in the UK, you may need to register for VAT. If you sell to businesses in the UK, then they normally take on the VAT and Customs responsibilities.

Being a non-UK resident

Don’t pretend to be a non-UK resident. You need to work through the UK Statutory Residence Test and the Double Tax Agreement to work out how you are a non-UK resident and then what you are going to be taxed on if anything in the UK.

Being a temporary non-UK resident

If you are only a temporary non-UK resident (ie abroad for less than 5 tax years), some gains and income can become taxable when you land back in the UK.

Don’t live abroad just for the tax

If you want to live abroad and not pay UK tax, that is reasonably straightforward, but go to a country where you want to live. If it also has a better tax system that’s even better. Don’t go abroad just for the tax.

Inheritance tax 

Becoming a non-UK resident does not always break your UK domicile for IHT purposes. So you can remain subject to UK IHT on your worldwide assets.  This could take several years to lose.  A non-UK domiciled person should only be subject to UK inheritance Tax on UK situs assets.

Summary

Although setting up a business in Dubai can be extremely lucrative from a tax perspective. Those individuals looking to do this will need to live and work in Dubai and have no UK premises to be completely exempt from UK tax. If this is not going to be the case we would highly recommend seeking specialist tax advice to calculate the best option for you.

How can we help?

At Hawsons we have a team of tax specialists who have helped a number of clients ensure they have been tax efficient when setting up, moving to or expanding their businesses to the UAE. We are part of HLB International, a global network of independent accountancy and advisory firms where we combine expertise and global capabilities. Our international reach is valuable to being able to act for you and your business in the UAE.