Rethinking the UAE: When Setting Up a Company Elsewhere May Be Wiser

When the UAE Isn't the Best Place to Form a Company

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Considering setting up a company in the UAE? This comprehensive guide explores the key factors to weigh when deciding if the UAE is the right jurisdiction for your business, including tax implications, talent availability, and banking options. Learn when the UAE may not be the optimal choice.

Introduction

As someone who spends a significant portion of the year in the UAE, I have a deep appreciation for the country and the opportunities it offers. The UAE, and particularly Dubai, has established itself as a global business hub, attracting entrepreneurs and companies from around the world. However, the UAE is not always the best choice for forming a company, especially for those who do not plan to physically relocate there.

In this in-depth blog post, we'll explore the circumstances when the UAE may not be the most suitable jurisdiction for your business, and discuss alternative options that may better suit your needs. By the end, you'll have a clear understanding of the key factors to consider when deciding where to establish your company.

Residency and Maintenance Costs

One of the primary drawbacks of setting up a company in the UAE for those who do not plan to relocate there is the high cost of maintaining residency. To maintain a UAE company, you are required to visit the country at least once every six months. This means that in addition to the costs of running the company itself, you'll also need to factor in the expenses of travel, accommodation, and other related costs.

For those who are not based in the UAE, these ongoing residency maintenance costs can quickly add up, making the UAE a less attractive option compared to jurisdictions where you can manage your company remotely without the need for regular visits. Countries like Hong Kong, the US, Estonia, Cyprus, and others may offer more cost-effective solutions for businesses that do not require a physical presence in the UAE.

Access to Local Talent

Another potential drawback of setting up a company in the UAE is the limited availability of specialized local talent. While the UAE is actively working to address this issue, the reality is that certain skill sets, particularly in highly technical or niche areas, may be in short supply.

This can make it challenging and more expensive to build a team in the UAE, as you may need to rely on more costly expatriate hires or face difficulties finding the right candidates. In contrast, jurisdictions with larger talent pools, such as the US, Europe, or certain Asian countries, may provide businesses with a broader range of skilled professionals to choose from at more competitive rates.

Corporate Tax Implications

The introduction of a 9% corporate tax in the UAE has also impacted the attractiveness of the country as a tax-free jurisdiction for businesses. While there are some exceptions and ways to optimize the tax structure, for many companies, the 9% corporate tax rate, along with the associated tax filing requirements, can make the UAE a less appealing option compared to other low-tax or no-tax jurisdictions.

Businesses that are not based in the UAE and do not have a significant presence there may find that they can achieve greater tax efficiency by establishing their company in locations like Malta, Madeira, Labuan, or Hong Kong, where the corporate tax rates are lower or even zero.

Payment Processing and Banking Challenges

The UAE's payment processing landscape can also present some challenges for businesses. While options like Stripe and PayPal are available, the costs associated with these services are often higher than in other regions. This can be a concern for companies that rely heavily on online transactions and need to optimize their payment processing fees.

Additionally, accessing banking services in the UAE can be more difficult for non-residents. Whereas companies based in the European Union, for example, have a wide range of banking options within the EU, businesses formed in the UAE may find that their banking choices are more limited if they are not physically present in the country.

Weighing the Pros and Cons

The UAE undoubtedly offers many advantages for businesses, particularly those that plan to establish a physical presence in the country. The ease of company formation, the business-friendly environment, and the tax-free personal income structure make the UAE an attractive option for many entrepreneurs and companies.

However, for those who do not intend to relocate to the UAE or maintain a significant presence there, the higher costs, limited talent pool, corporate tax implications, and banking challenges may outweigh the benefits. In such cases, alternative jurisdictions like Hong Kong, Estonia, Malta, or even the United States may be more suitable options that better align with the needs and goals of the business.

Conclusion

Ultimately, the decision of where to form a company should be based on a careful analysis of your specific business requirements, growth plans, and long-term objectives. While the UAE can be an excellent choice for some, it may not be the optimal solution for all businesses, especially those without a strong connection to the country.

By understanding the key factors to consider, such as residency costs, talent availability, tax implications, and banking options, you can make an informed decision that sets your business up for success, regardless of your geographic location. If you need assistance in evaluating your options or setting up a company in the jurisdiction that best suits your needs, I encourage you to reach out to our team of international tax and relocation specialists at Offshore Citizen.