No More TAX-FREE Dubai in 2023 – Discover If It’s Worth Setting Up Your UAE Freezone Business

18 April 2022

Tax rules are changing in Dubai free zones for entrepreneurs who want to set up a tax-free business in Dubai from 2023!

  • Find out how the new Dubai tax rules compare VS incorporating a UK company!
  • Discover if its STILL WORTH setting up a business in the UAE!

Listen in and don’t forget to subscribe!  

 

*** Links to Mentions in this Episode ***

Lauren Tickner YT channel

Decisive Zone Dubai

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Opportunity Awaits podcast Episode Transcript

[00:00:00] Dubai will no longer be a tax-free Haven for many businesses. So is it worth the hassle and expense of setting up in Dubai just to save about 10% in tax, but if you're wondering what free zones are, I was always of the assumption that free zones were called free zones, just because there was no tax. [00:00:18] It's not the case. [00:00:48] Welcome to this episode. And today I'm going to be talking about the changes. That means Dubai will no longer be a tax-free Haven for many businesses and a comparison showing how the taxes compare to UK businesses. Now, if you're watching on YouTube, get subscribed right now. And if you're listening to the podcast on apple or Spotify or wherever you listen to your podcasts, it follow or subscribe to the show. [00:01:15] It just shows you're interested. And if we ever put any more updates about this online, you're going to hear about it first. So traditionally Dubai has been known since it sort of sprung up from the desert. It's been known as like a tax-free Haven, really. And there's 0% tax right now for many, many types of businesses, particularly businesses that sort of come from the UK and open up in the, by particularly online businesses. [00:01:43] Many types of businesses pay 0% tax right now and I only found out about that. When I was listening to Lauren Tickner's YouTube video, which I'll put a link to in the show notes or in the comments or whatever, wherever, wherever I can put it, I'll put a link to it. But I was listening to Lauren Tickner's YouTube video back in 2021. [00:02:03] And that's where I learned about Dubai being this like awesome tax free place for entrepreneurs and like business owners who, who want to get out there and create a great life and pay no tax really. So I've thought about it for a while. I had, I was in contact with some companies looking into it before, and I thought I would get back in contact again, because now I'm back in, [00:02:28] in the business mood and sort of COVID is sort of, it's not stabilized, but it's kind of a lot less of a problem now than it was a year ago. I decided to get in contact with Kyle again from the Decisive Zone. And Kyle actually lives in Dubai and he's from the Philippines originally, but he lives in Dubai and they help people like myself, entrepreneurs who are looking at setting up businesses in Dubai. [00:02:52] Now, as you'd expect, that's his job and he's very knowledgeable. He gave me tons and tons of information, but more important. When he knew that I wasn't going to be doing this until like, after the summer, September time even looking at it he still gave me a ton of his time and dedication and support helping me through that. [00:03:10] So I was really appreciative to Kyle from the Decisive Zone. And also I'll put a link to that company as well in the show notes. Now we spoke a lot about the free zone in the mainland companies. And the reason for that is. Well, it's, it's really not important. But the reason for that is because one type of business to potentially I'd open, there is a free-zone can be done in the free zone. [00:03:33] Another type can't be done in the free-zone. And it's only the mainland. Now at the moment, the free-zone zones have no audits, which means you're not paying an accountant to do any, do any filings for tax purposes. You're not paying any tax. However, From the 1st of June, 2023, that is going to change. So they've introduced a new federal corporate income tax, which they are calling CIT. [00:04:03] C I T Charlie and go Charlie India, tango. And that's going to cover the Dubai free zone because it is a state, federal corporate tax. So it's blanket. So the free zone places are also going to pay this tax. Now, why are they doing it? Well, unsurprisingly, I, as soon as I read hydrocarbons, I just stopped reading really, to be honest view, if you want to find out why they're doing it, [00:04:29] please go and Google it somewhere. I'm not going to talk about it, but that just sounds like government talk for, we need more money, but we're going to use climate change as the excuse for taking it off people. But there you go. Now, if you're wondering what free zones are now, I was always of the assumption that free zones were called free zones, just because there was no tax. [00:04:50] It's not the case. What Kyle explained to me was actually free zones are just like the states in America. So you get like the federal. Government that governs the entirety of America. And then you also get states where they do their own individual things. So the free zones are like states. And it's got nothing to do with whether you pay tax or not. [00:05:11] So from 2023, as I say, the UAE companies. So any companies that set up there for his own companies, mainland companies will have to pay a 9% corporation tax on profits over 375,000 dirhams AED. Now in GBP, that's approximately £77,600 GBP or $102,000 USD. Now, how does that compare to the UK then? So at present at the time of this recording, for most UK businesses, the corporation tax is 19% on profits. [00:05:48] So then you're kind of thinking, well, is it really worth the hassle? And the expense of setting up in Dubai because it is expensive. So is it worth the hassle and expense of setting up in Dubai just to save about 10% in tax? Well, I'm not an accountant or a tax advisor. I'm going to make that really clear. I am not an accountant! [00:06:09] Or a tax advisor! And I'm not giving you any tax advice at all!!! Okay. So go and get your own advice from professionals that you can find somewhere else. But from what I can work out from speaking to Kyle, I've done a comparison now because I'm not a tax advisor and accountant, and I'm not going to go into some crazy depths. [00:06:29] I mean, here's the comparison. It's over a couple of pages for those. Well, for those of you on YouTube, you can see that if you listen to the podcast, obviously you can't see it. I've already written it out. And this is based on the only business in the world where you have no expenses at all. Okay. So I've done it based purely on a business where we're going to assume an annual income of 1 million dirhams AED AED. [00:06:57] That's about £210,000 GBP or $275,000 USD at a time of this recording. It's all of the numbers I talk about our approximate exchange rates. So don't quote me in any, in any case I've done it based on that. And I'm assuming 100% of that is profit. There's no expense in that business. If you do happen though, to run a business that is zero expenses and a 100% profit. [00:07:23] Please let me know, because I want to set it up. I get it, that this is not going to be at, you know, it's not going to be realistic, but it gives you an idea of the differences in the tax between Dubai and the UK, particularly when taken into consideration, there's 9% corporation tax. Right, so with Dubai, we've got [00:07:48] 375,000 dirhams AED, which is going to be payable sorry, 9%, which will be payable on any income over 375,000 dirhams AED. Okay. So that means that your taxable pay for our example is around 625,000 dirhams AED. Okay. For the UK, because we're saying this is all profit. We are going on 1 million dirhams AED. Okay. [00:08:13] Is the taxable at 19%. So the corporation tax for Dubai, if I've done this calculation right at 9% will be based on 625,000 dirhams AED. Okay. So that's not included in the first 375,000 AED, which means a tax liability of 56,250 dirhams AED, which is about £11,700 GBP or $15,300 USD. Now, if you compare that to the UK, based on the whole million. [00:08:42] We've got about £39,900 GBP, which is roughly 192,300 dirhams AED or $52,500 USD. Okay. Now what does that mean? You're left with out of that million dirhams AED that you started off with, what are you left with? So, If you're in, if you've got a Dubai based company paying that 9% corporation tax you're left with about 943,750 dirhams AED. [00:09:13] Okay. Which is okay. You know, obviously if you're not paying any tax at the moment, then it's not great, I guess. But if you, you know, if you're paying 9% tax to someone in the UK yeah. You're still saving 10%. So. That's about £195,600 GBP or $257,000 USD. Okay. So that's what you're left with out of the original amount. [00:09:41] So in the UK now you'd be left with approximately 821,000 dirhams AED, which is around £170,100 GBP or $224,000 USD. So, what does that mean in savings? Okay. Cause I've said a lot of numbers to you. So the savings there are about 122,750 dirhams AED. It's about £25,400 GBP or $33,400 USD. Okay. So when you go by that comparison, just on the new tax, you kind of think, well, is it actually worth. [00:10:25] You know, is it actually worth all that expense to based on that million dirhams AED income, is it worth worthwhile to expense just to save £25,000 GBP out of that? And, you know, obviously going from the UK over to there and setting up and all the amount of money you'd pay to do that, is it worth that some may say yes, maybe for the lifestyle, you're not, you're not going to save much or whatever. [00:10:51] Yes, it's fine. But in others may be like, actually, no, it's not worth it. Like there's no real business sense in that. So that would be correct. If you only took into consideration the corporation tax, however, income tax! Income tax remains zero in Dubai. And there is no indication that that's going to change anytime soon. [00:11:17] So it's 0% right now. So if you'd set that company up in Dubai and it made that 1 million dirhams AED or £210,000 GBP or $275,000 USD equivalent, you would keep, you know, 943,750 dirhams AED or £195,600 GBP or $257,000 USD. So from the $275,000 USD, you'd keep $257,000 USD. From the £210,000 GBP, you would keep £195,600 GBP. [00:11:51] So let's get on to income tax then, because that is what you would keep. If you set up in Dubai, however, the UK have a really strange and expensive dividend system. The government seemed like it's entitled to not only corporation tax, but they also want a lump of your money is dividends when you pay that out. [00:12:16] So it's more expensive to take your money out as payroll, as a lot of you will know in the UK. So a lot of companies will take it out as dividends. So this is, this would be the way that British companies would probably do it for most of them. And I've done a little chart here, but basically how it works is you pay 0% at the time. [00:12:38] At the time of recording near 0% on the first £2000 GBP. You pay seven and a half thousand GBP at seven and a half percent between £2000 GBP and £37,700 GBP. You pay 32.5% between £37,700 GBP and £100,000 GBP. You pay 48.75% for the money between £100,000 GBP and £125,140. [00:13:08] It just sounds ridiculous. All these numbers, right? And then you pay 32.5% on £125,140 GBP £250,000 GBP. And anything above that is 38.1% nice and simple system here in UK. So Dubai, you've got 0% on your income there and in the UK, it's it's crazy. So I'm just going to stick to. The tax really is in what you'd pay overall, what you would end up paying in UK tax based on your profit there, which would have been around £170,100 GBP. [00:13:44] If you set up the company in the UK, you would pay a further £50,918 GBP in dividend tax. Okay. So that's approximately 245,700 durham's or $66,900 USD. Okay. So now when you start taking into account the tax that you would pay on the dividends in the UK as well. Okay. Now you start seeing a bigger difference and why you might start thinking, Hmm. [00:14:18] Actually I'll set up in Dubai potentially. So. I'll go over this now. So for those of you who didn't keep up with the numbers, I basically couldn't keep up numbers and I've got them written down. So bear with me. It's absolutely fine. We'll get down to what the, what the difference actually is. Now in Dubai, you would keep your 943,750 dirhams AED versus in the UK. [00:14:44] What you'd be left with. Is 575,300 dirhams AED, roughly, which is a difference of 368,450 dirhams AED. Okay. So the difference is approximately £76,300 GBP or $100,300 USD. That is a significant difference based on this non-existing company that wouldn't exist. But if it was based on a company that did a million, 1 million Durham's income in a year and had no expenses, obviously no company in the world exists like that. [00:15:24] But to make it simple, based on those figures, that's what the difference would be. So that's where you can see that actually, there is still a real reason for setting up in Dubai versus versus staying in a UK because. You just pay so much. So let's looking at these numbers in the UK. It's insane. It makes me feel unwell. [00:15:47] Now I went through these numbers quite recently with my accountant, not the example here, but was going through the whole dividend structure to understand it because it's so complicated. And, and it's just ridiculous that. You know, he was sort of saying, well, you know, the best way around it is going to set up, you know, go and get your residency in somewhere like Dubai. [00:16:09] So, you know, I forget he's maybe sort of triggered it in my mind again, to start thinking about it. And that is if you get your residency and obviously you need your visas and everything like that. And I, I can do another episode on that because Kyle went through that with me in great detail. And it doesn't actually seem that, that complicated to do. [00:16:29] Some of it can be done completely remotely, depending on the type of business structure you have some of that you have to actually be in Dubai to sort out, but anyway, if you want to hear about that, definitely leave a comment in the notes below. Or if you're listening to the podcast, leave it, leave a five star review, but also leave a question there so that I can [00:16:48] come back and do another episode on that. If that's something you are listening to or interested in listening to now, like I said, it's not an exact comparison, the way that I just did that, the way things that are taxed, the different certain types of companies in the UK, and also Dubai are taxed differently to the ordinary. [00:17:05] That was just a blanket example to try and make it simple without making it too complicated where I'd probably get it wrong anyway, because I'm not an accountant or a tax advisor, like I said, don't quote me. But there is, there is a significant difference. Okay. So the only thing I would say about Dubai is from what I've heard so far, there seems to be very, very strict rules on regulated businesses, particularly which are quite vast in the sorts of types of businesses that are classed as regulated. [00:17:39] And then they've also got their unregulated business types, unlike in the UK, really? I mean, well, in the UK, we do have regulated non-regulated stuff. So for example, if your business is regulated by the financial conduct authority, or if you're like a law firm or something like that. But one thing that I found odd is like a cleaning company is classed a regulated company out there. [00:18:01] And therefore it cannot be set up as a free zone company, which is why apparently there aren't that many out there. And it's expensive to employ staff requiring a visas per employee, which is super expensive, wherever it's free to free zone or the mainland business. And depending on the number of staff you have. [00:18:20] So I use a cleaning company as an example because I have a cleaning company and we have, I don't know, coming up to about 70 cleaners that are working now, the problem is, is that those 70 odd cleaners are never in our office. They, in fact, they are. Miles away. Some, some of them are hundreds of miles away from our office, so they never go to the office. [00:18:42] However, in Dubai they're rules, stipulate that, you know, if you've got a certain number of staff, you need a certain number of square foot as an office, which is really strange because I could imagine like 3 members of staff in this gigantic office, you know, just sat there in the middle of the room. Like, what would they be doing with that massive office? [00:19:02] Apparently there's a way around it. So if you're shouting at me right now saying, oh, but there are estate agents that can just give you a small office with visas. Kyle did explain that. And I, that's another episode I could go into to sort of explain that a bit more detail to you if you wanted to know about it. [00:19:17] But yeah, so that's it really, you know, if there is a. Yes, Dubai are changing their rules. Yes. You're going to now pay 9% corporation tax over 375,000 dirhams AED. But if you're coming from the UK over to Dubai and you're setting up a business that earns a particular sum of money, you're still probably going to be significantly better off. [00:19:42] And in fact, just the amount you'd pay in tax in the UK. Would be a very decent salary, a very, very good salary here in the UK indeed just from the amount of tax that you would save. Okay. That doesn't even factor in the lifestyle differences or anything like that. So it's definitely still worth in my opinion. [00:20:01] Anyway, it's definitely still worth looking into, I'm going to still look into it because the advantage is massively seem to outweigh the disadvantages of this new 9% tax. So if you'd like me to share anything else about the research that I'm doing into Dubai, leave a comment in the, in the notes below, or leave a comment in the comment box below. [00:20:25] And if you're listening to the podcast, leave a five star review with your questions and any comments that you have about the podcast. And I would be more than happy to sort of fill you in on. Yeah. When I speak to Kyle next, if there's anything that we've not gone through yet, I will definitely speak to him about it and then come and fill you in on what exactly is going on in Dubai and any questions you may have around it. [00:20:51] So go and follow and subscribe now on YouTube. And if you're listening, go and follow and subscribe. And until next time I'm Aaron Henriques, take care.

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