The United Arab Emirates (UAE) offers a compelling environment for international business through its establishment of Offshore Companies. These entities hold legal recognition within the UAE, granting them the ability to engage in contractual agreements and other lawful transactions. However, Offshore Companies has its unique features, benefits and restrictions and are regulated by the Regulations issued by the relevant Jurisdictional Authorities.

In the UAE, there are only three Authorities where offshore companies can be incorporated and the same being Jebel Ali Free Zone Authority (JAFZA), Ras Al Khaimah Free Zone Authority and Ajman Free Zone Authority. This Article is with reference to the Regulations issued by JAFZA.

Operational Structure:

An Offshore Company in UAE is a legal entity with limited liability that is allowed to operate outside the location of its setup. In other words, business operations of the Company is permitted to be shifted to another jurisdiction mainly to enjoy the tax advantages and relaxed regulations that the other jurisdiction offers. An Offshore Company is allowed to carry on lawful business activity as permitted by the Registrar from time to time. It is usually represented through a designated registered agent. This agent serves as the official representative before the relevant regulatory authority overseeing Offshore Companies in the UAE. Consequently, the registered agent’s address becomes the official address for the Offshore Company.

Restrictions and Considerations:

It’s crucial to acknowledge that specific regulations and limitations apply to Offshore Companies in the UAE. The following restricted permitted activities apply in terms of the Regulations issued by JAFZA:

An Offshore Company shall be permitted to:

(a) engage with legal consultants, accountants, management companies or other similar persons carrying on business within the United Arab Emirates;

(b) prepare and maintain books and Records within the United Arab Emirates;

(c) hold meetings of its directors or members within the United Arab Emirates;

(d) hold a lease of property for use as a registered office in any designated freehold area in the United Arab Emirates approved by the Authority;

(e) own a property in one of the designated freehold areas in the United Arab Emirates;

(f) own a stake in another operating Company within the United Arab Emirates; or

(g) hold an account in a bank in the United Arab Emirates

Business Operations:

An Offshore Company by itself cannot carry out any business activities and that is the reason that offshore Companies are only issued Certificates of Incorporation. An Offshore Company must obtain appropriate licenses or permits from competent authorities to carry out business activities in the JAFZA Free Zone or any other jurisdiction.

Registered Office:

An Offshore Company shall at all times have a registered office which must either be, an office maintained in the JAFZA Free Zone, a property owned by the Offshore Company in a designated freehold area in the United Arab Emirates, or the office of the Offshore Company’s Registered Agent in Dubai, to which all communications and notices may be addressed.

Registered Agent:

An Offshore Company shall at all times have a Registered Agent. This requirement is optional for Offshore Companies that maintain an office in the JAFZA Free Zone.

Benefits and Considerations:

This unique structure offers several advantages to businesses seeking to operate internationally:

  • Streamlined Operations: The option to operate without a physical office and with a Registered Agent’s Office address simplifies the operational setup for the Offshore Company and can be cost-effective.
  • Nominee Director and Secretary: An Offshore Company is permitted to operate through a Nominee Director and Nominee Secretary being a body corporate so approved by the Authority.
  • Transfer of Foreign Company: The Regulations permit overseas Companies to be shifted to JAFZA as an Offshore Company as a going concern where it is so permitted by the overseas jurisdictional authorities. Similarly, JAFZA Offshore Companies can be shifted to overseas jurisdiction as a going concern.

UAE CORPORATE TAX IN RELATION TO OFFSHORE COMPANY:

Now that the UAE imposes Corporate Tax, the moot question arises whether UAE Corporate Tax will apply to an Offshore Company incorporated in the Jurisdictions within the UAE and whether an Offshore Company is obliged to obtain a Corporate Tax Registration Number.

As per the Legislature (Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses) governing the UAE Corporate Tax, it is imperative to find out what constitutes a Taxable Person and if at all an Offshore Company falls within the definition of Taxable Person.

Article 51 of the Decree requires that “Any Taxable Person shall register for Corporate Tax.”

Taxable Person is defined to mean “A Person subject to Corporate Tax in the State under this Decree-Law.”

Article 11 further provides that “a Taxable Person shall be either a Resident Person or a Non-Resident Person.”  It further provides that a Resident Person can be “A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of the State, including a Free Zone Person.”

Article 12 of the Decree lays down the Corporate Tax Base and accordingly provides that “A Resident Person, which is a juridical person, is subject to Corporate Tax on its Taxable Income derived from the State or from outside the State.”

Further, the FAQ issued by FTA and listed on the UAE Govt. site (tax dot gov dot ae) provides that “All activities undertaken by a juridical person will be deemed “business activities” and are within the scope of UAE CT, unless specifically exempted.”

The same also provides that “Taxpayers are required to file a CT return, irrespective of the level of income or the status of the company.”

CONCLUSION:

In view of the above, an Offshore Company, being a juridical person, incorporated in the UAE will be considered as a Resident Person and subject to UAE Corporate Tax. It is possible that although an Offshore Company may not have any Taxable Income but will still be regarded as subject to Corporate Tax and therefore is required to obtain a UAE Corporate Tax Registration number and file  UAE CT Return. It is also possible that an Offshore Company may attain the status of Free Zone Person but nevertheless is required to obtain UAE CT Registration number and file  UAE CT Return.

Further as per the Ministerial Decision No. 3 of 2024, effective 1st March 2024, in respect of the timeline for obtaining a CT Registration Number, it provides that where a person does not have a Licence at the effective date of this Decision then the Deadline for submitting a Tax Registration application is three months from the effective date of this Decision which means that the deadline for an Offshore Company would be 31st May 2024.