The United Arab Emirates legislation (hereinafter ‘UAE’) provides for the existence of 2 the category of companies. Onshore companies are subject to taxation under national law, while international companies or offshore companies are exempt from any tax, not just income.
Moreover, with regard to international companies, UAE law does not provide for any requirements regarding the recording of transactions, audits or accounts. The laws of the individual Emirates are very similar, although they show some local differences.
Due to the nature of international companies, they cannot obtain a residence certificate from the Minister of Finance, but only an incorporation certificate from the authorities of the United Arab Emirates in whose territory they were registered, which would mean paying a high withholding tax in case of direct transfer of capital from Poland or most EU countries.
Therefore, the use of Cypriot company between a Polish company or a company from another EU country and a company based in the UAE will allow tax-neutral movement of capital to the UAE.
Cyprus legislation does not provide for any withholding tax in the case of transfers to companies in the UAE, both as regards passive income and profits from the operations of local companies.
Ras Al Khaimah
Ras Al Khaimah is the youngest member of the United Arab Emirates federation since 1972 The law of Ras Al Khaimah (RAK) is modelled on the law of the companies of the British Virgin Islands, i.e. a typical offshore jurisdiction, which assumes the possibility for shareholders to choose the law applicable to the company (e.g. the laws of the British Virgin Islands, Seychelles, Delaware or other) which will apply to certain aspects of the company's functioning (e.g. settlement of disputes between shareholders).
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Information on companies registered in the territory of the free trade zone of the RAK is not publicly available, which is equivalent to the lack of effective exchange of tax information with other countries.
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The RAK legislation does not provide for minimum capital requirements for its companies, nor does it require the legalisation of corporate documents from other countries when used in UAE territory.
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The company must have at least one the director (member of the board), who may be a person of any nationality, and it should be remembered that the majority of local directors must be kept in mind in order to protect the company from the charge of tax residence in Poland due to the location of its board of directors. The director may also be a legal person. The directors concerned are not publicly available and must be disclosed to the relevant registration authorities.
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The company in RAK must also have a secretary who may also be of any nationality. The secretary is the body of the company and is responsible for contacts with local authorities.
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The company in RAK must have a minimum one a shareholder whose data are not publicly available but are only exposed to the local authority when registering the company. It is also permissible for the company to issue bearer shares and to hide the actual shareholder as so-called the nominal structure, i.e. a shareholder-teller, which holds shares in the name and on behalf of the depositary on the basis of a fiduciary agreement, which is a typical instrument for Anglo-Saxon systems.
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Companies established in the free trade zone of RAK may not engage with persons or economic operators operating in the free trade zone of RAK or in the UAE, with certain exceptions specified in local legislation, which generally assume the need to obtain an appropriate licence. These companies may not operate in the following sectors: banking, insurance, reinsurance, agency and brokerage activities in the field of insurance, unless the company is licensed for the abovementioned activities.
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The name of the company is also restricted. Names containing certain words such as ‘bank’, ‘trust’, ‘insurance’, ‘security’ or ‘royal’ require the consent of the relevant UAE minister. The name of the company must be terminated by the word ‘Limited’ or ‘Incorporated’ or the relevant abbreviation ‘Ltd/Inc’
Source tax
The basis of most optimization structures covering at least 2 foreign companies are intangible services, at least at one stage of tax optimization. The legislator recognises the risks associated with these structures and tries to counter this risk.
In the case of payment to a foreign counterparty for the services it performs and in the case of payments from other legal titles, the taxpayer is required to collect a flat-rate income tax (so-called withholding tax).
This tax for advisory, accounting, market research, legal services, advertising, management and control services, data processing, staff recruitment and recruitment services, guarantees and guarantees and similar benefits shall be 20%.
Failure to collect this tax depends on whether the taxable person paying the above claims is in possession of the residence certificate of his foreign counterparty.
Since offshore from the UAE cannot obtain a residence certificate, direct payments from Poland to such a company would be subject to withholding tax. Therefore, it is necessary to use an intermediary company between a Polish company (a current counterparty of a Polish company) and a company in the UAE.
The intermediate company should be established in the EU and be able to document its residence with a tax residence certificate. Of course, the legislation of the country of its registered office should allow tax-neutral (i.e. tax-free at source) transfer of income to a company in the UAE.
Of the EU Member States, these requirements are fully met by Cyprus legislation.
In this structure, Cyprus will allow the tax-neutral outflow of funds from Poland or other EU countries, while offshore in the UAE will also allow tax-neutral return of accumulated income to Poland in the form of a remuneration of the company's director in the UAE.
Directors' remuneration
Companies in the UAE may accumulate capital or distribute it at the request of their beneficiaries. It should be noted that the UAE double taxation agreement provides for the same method of taxation of directors' salaries as the Polish-Cyprus agreement, which further increases the tax attractiveness of UAE legislation.
In practice, this means the lack of taxation of the remuneration of individuals, subject to an unlimited tax obligation in Poland, for sitting on the board of companies established in the UAE, both in Poland and in the UAE, which, although they may under a double taxation agreement with Poland, do not tax the remuneration of directors of their nonresident companies under local tax law.
No provision of a double taxation agreement with the UAE makes the tax qualification that is favourable to taxpayers subject to presentation to the Polish tax authorities of a certificate of the company’s residence in the UAE paying the remuneration of directors.