Tax risks for business owners moving to Dubai

The UAE is known for its beneficial tax regime, but business owners need to plan their move carefully.

The UAE is known for its beneficial tax regime, especially for individuals, but there are some things to be aware of if you are thinking of making the move as a small business owner.

What is your company’s tax residence?

Just like individuals have a tax residence companies also have a tax residence. This status determines where they are required to complete their tax administration and pay corporate taxes.

In the case of a company incorporated in the UK, this will initially be UK resident for tax purposes. Under UK law, incorporation is one of the determinants of tax residence.

This is also true of the UAE – a company incorporated in the UAE will be UAE tax resident.

However, there are other ways to be a tax resident as a company; both the UK and UAE also consider a company whose management and control are situated in their country as being tax resident.

If you emigrate to the UAE and continue to run your UK-registered company you may be effectively managing and controlling the company from the UAE. The company may be UK resident through registration but UAE resident through management and control.

Just as with individuals, when a company meets the conditions for tax residence in two countries, the overruling residence is determined by a Double Tax Treaty. The UK-UAE Treaty states that in the case of a company doing so, the relevant tax authority of each company will determine the location of the company’s residence by mutual agreement.

So where does the risk lie for business owners?

Firstly, assuming the residence changes – in the requirement to register the company in the UAE (they have recently introduced corporate tax) but perhaps even more urgently, with the requirement to inform HMRC in advance of an intention to export a company (change its tax residence status from UK to overseas). There are penalties for not reaching agreement before the migration of the company and there may be tax to pay as an ‘exit charge’.

Could you be operating as a permanent establishment in Dubai?

Perhaps you are not the management and control of a UK company, does that leave your main risk in emigrating to be sunstroke? Unfortunately, there is a further risk, your activities in the UAE on behalf of a UK company (e.g. an employer) may be considered to lead to a ‘permanent establishment’ in the UAE of the UK company (imagine it like a branch, or outpost).

If this is the case, the UK-UAE Treaty states that any profits attributable to that establishment are taxable in the UAE.

There may also be an element of administration to undertake with the tax authority in the UAE.

Our specialist advisors are working with individuals and their businesses to help ensure that they are structuring their plans in the most effective way for their relocation to Dubai.

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