How Foreign Corporates Can Set Up in UAE and Minimize Taxes
“Synopsis”
The UAE has long been a magnet for global businesses—and with the introduction of a 9% federal corporate tax, the landscape has evolved. But the country still offers one of the most tax-efficient environments in the world—if you structure your setup correctly. This guide walks foreign corporates through how to establish a presence in the UAE and legally minimize taxes in 2025.
1. Understand the UAE Corporate Tax Framework
As of June 1, 2023, the UAE introduced a 9% federal corporate tax on business profits exceeding AED 375,000.
Legal Reference:
- Federal Decree-Law No. 47 of 2022 – Corporate Tax Law
- Cabinet Decision No. 55 of 2023 – Qualifying Free Zone Person (QFZP)
- Ministerial Decision No. 139 of 2023 – Qualifying Income & Excluded Activities
Key highlights:
- 0% tax on profits up to AED 375,000
- 9% tax on profits above that threshold
- 0% tax for Qualifying Free Zone Persons on eligible income
- No personal income tax, no capital gains tax, and no withholding tax on dividends or interest
2. Choose the Right Business Structure
Foreign companies can set up in the UAE as:
- Free Zone Company (FZC or FZ LLC)
- Mainland LLC or Branch
- Representative Office
- Holding Company or SPV (in DIFC, ADGM, or RAK ICC)
Each structure has different tax and operational implications.
Tip: Free zone entities can enjoy 0% corporate tax if they meet QFZP conditions.
3. Free Zone vs Mainland: Which Is Better for Tax Efficiency?
Free Zone Setup
- 0% corporate tax on qualifying income
- 100% foreign ownership
- Access to DTAA network via UAE Tax Residency Certificate
- Ideal for holding companies, exporters, and service providers
But: Must avoid “excluded activities” and limit mainland transactions.
Mainland Setup
- 9% corporate tax on profits above AED 375,000
- Can trade directly within the UAE
- Required for businesses targeting local customers or government contracts
Legal Note: Free zone companies dealing with mainland entities may lose QFZP status unless structured carefully.
4. Use Holding Companies and SPVs for Asset Protection
Setting up a holding company or SPV in DIFC, ADGM, or RAK ICC allows you to:
- Ring-fence assets
- Consolidate global investments
- Repatriate profits tax-free
- Access UAE’s 140+ Double Taxation Avoidance Agreements (DTAAs)
Legal Reference:
- DIFC Companies Law No. 5 of 2018
- ADGM Companies Regulations 2020
5. Register for Corporate Tax and Stay Compliant
All foreign-owned entities must:
- Register with the Federal Tax Authority (FTA)
- File annual corporate tax returns
- Maintain audited financials (depending on license type)
- Comply with Economic Substance Regulations (ESR) if conducting relevant activities
Legal Reference:
- UAE ESR: Cabinet Resolution No. 57 of 2020
- FTA Corporate Tax Guidelines 2024
6. Avoid Double Taxation with DTAAs
The UAE has signed 140+ DTAAs with countries including the US, UK, India, Singapore, and Germany.
Benefits include:
- Reduced or zero withholding tax on dividends, royalties, and interest
- Foreign tax credit for income taxed abroad
- Legal protection against double taxation
To claim: Obtain a UAE Tax Residency Certificate and submit Form 67 in your home country (if applicable).
7. VAT and Transfer Pricing Considerations
- VAT: 5% applies to most goods and services. Foreign companies must register if turnover exceeds AED 375,000.
- Transfer Pricing: Applies to related-party transactions. Must comply with OECD guidelines and maintain documentation.
Legal Reference:
- UAE VAT Law – Federal Decree-Law No. 8 of 2017
- Corporate Tax Law – Articles 34–38 (Transfer Pricing)
8. Common Mistakes to Avoid
- Choosing the wrong jurisdiction (free zone vs mainland)
- Failing to meet QFZP conditions
- Ignoring ESR or transfer pricing rules
- Not registering for corporate tax
- Assuming 0% tax applies automatically
Conclusion
In 2025, the UAE remains one of the most attractive jurisdictions for foreign corporates—but the game has changed. With the introduction of corporate tax, smart structuring is no longer optional—it’s essential.
By choosing the right setup (free zone, mainland, or holding company), complying with ESR and transfer pricing rules, and leveraging DTAAs, foreign businesses can still enjoy world-class tax efficiency—legally and transparently.
If you’re planning to expand into the UAE, don’t just set up—structure smart.
