Changes in Legislation for Businesses in Dubai

Changes in Legislation for Businesses in Dubai
29 November 2023

For a successful business in Dubai, it is crucial to adhere to rules and avoid illegal financial transactions. The UAE, especially Dubai, aims to be an ideal global business hub by providing companies with the necessary infrastructure and business ecosystem. Financial rules are in place to protect the interests of companies and the country. In an effort to strengthen its position as a global trade and financial center, the UAE has made changes to national legislation and joined international agreements, such as the Organisation for Economic Co-operation and Development (OECD).

Changes in UAE Tax Legislation

Until recently, the only tax for foreign companies in Dubai was Value Added Tax (VAT). As of June 1, 2023, a new corporate tax of 9% has been introduced. This tax is mandatory for both legal entities and freelancers with an annual income exceeding AED 375,000.

As of now, the VAT rate in Dubai is 5%, but it applies only to activities within the UAE territory. Mandatory registration applies to mainland companies, and enterprises with an income of AED 187,500 per year can voluntarily register for VAT.

Companies with annual profits exceeding AED 375,000 are also required to pay a 9% corporate tax. This tax is levied on profits, not on the company's turnover. Foreign companies engaged in real estate activities are also obligated to pay a 9% corporate tax.

Business Conduct Rules in Dubai require entrepreneurs to be knowledgeable about basic norms aimed at ensuring successful company management and protection against financial fraud.

Ultimate Beneficial Owner (UBO)

New requirements have been introduced in the UAE for all companies operating in the country, compelling them to adhere to Ultimate Beneficial Owner (UBO) registration rules. This innovative solution aims to enhance transparency in business operations, reduce instances of tax evasion, and prevent money laundering and other unlawful activities. Implementing UBO also strengthens the regulatory framework of the UAE, increasing the trust of foreign investors and creating a favorable business environment.

According to UBO principles, information about shareholders owning more than 25% of shares must be provided to competent authorities. Special attention should be given to providing accurate information about the beneficial owners of companies in the UAE, as outdated data may result in fines.

Changes in Legislation for Businesses in Dubai

Economic Substance Regulation (ESR)

All companies licensed in the UAE are required to comply with notification and declaration obligations and maintain "adequate economic substance" in accordance with Economic Substance Requirements (ESR).

Companies falling under ESR include those engaged in banking activities, insurance, financial leasing, fund management, headquarters activities of group companies, holding activities, shipping, intellectual property, as well as service centers and distribution centers.

GoAML System

The GoAML system mandates companies in the UAE in specific sectors to report suspicious transactions to authorities. This system aims to prevent opaque financial transactions and the financing of illegal activities.

As a low-tax jurisdiction, the UAE provides tax benefits for businesses. Agreements to avoid double taxation with 142 countries help foreign investors avoid double taxation.

Emiratization Program

The Emiratization program requires companies with more than 50 employees to have at least 2% local citizens in their workforce. Failure to meet this requirement results in financial penalties. Companies complying with this rule can receive incentives and privileges.