In this blog, we’ve already talked about the advantages and disadvantages of offshore companies, and the four tax systems in the world, and how to transfer your tax residence abroad, which is necessary if you want to take full advantage of your offshore business. Today we are going to talk about a specific offshore jurisdiction in the United Arab Emirates (UAE) and how to start a business there.
Classic offshore jurisdictions like St Vincent or the Marshall Islands are often very useful, but they have some disadvantages.
In many cases, they’re not suitable for businesses where clients need invoices to present to the tax office. In general, invoices from offshore states aren’t recognized by fiscal authorities in continental Europe. This means that the client can’t deduct taxes from this invoice, which is a considerable competitive disadvantage.
The way to avoid this reputation issue is simple, but it brings with it some new challenges.
If you start a business within the EU, you can do so by taking advantage of certain tax advantages that we’ve already told you about (United Kingdom, Estonia, Ireland, etc.). Sometimes you might not even need to pay taxes, but after a certain amount of sales volume, you will be subject to mandatory EU turnover taxes.
Obviously, this is a tax you’d prefer not to pay, although you might see it as something you have to do in order to have a European tax identification number (to be able to use Amazon FBA, for example).
Another option is to found the company in the United States, but this also has its disadvantages. US businesses (which I’ll talk about soon) have to provide the government with information about their bank accounts (FBAR) and if you want to be tax-exempt, you can’t have income from within the US (and thus you lose access to an important market). In the US, it’s also quite difficult to set up a worthwhile business bank account.
Now you’re probably asking: is there a solution that combines a good reputation and invoicing opportunities with the classic advantages of an offshore company?
Unfortunately, this “goose with the golden egg” doesn’t exist in our international tax structures. There will always be certain concessions, at least with respect to price.
This is the case with the offshore option I’m presenting today at Tax Free Today: starting a company in the UAE. For many people, it’s the perfect solution, even if it does bring certain start-up and maintenance costs.
The king among offshore sites
The King among offshore jurisdictions is neither an island nor a small State. In reality, it’s one of the best-known financial centers in the world, even though many people aren’t aware of how decentralized the State is. Clearly, we are talking about the United Arab Emirates (UAE).
When you hear about the UAE, you probably think about Dubai or maybe even Abu Dhabi. But have you ever heard of Ras al-Khaimah?
Ras al-Khaimah (known by the initials RAK), is one of the seven emirates of the United Arab Emirates. These are absolute hereditary monarchies run by emirs, which is where the country’s name comes from.
While there is a superior government for the UAE, the different emirates are quite autonomous and have the power to decide important questions in the Supreme Council (composed of emirs from the other emirates).
Since 1700, Ras al-Khaimah has been governed by the Qasimi family, who also rules the neighboring emirate of Sharjah.
When we think about offshore havens, we rarely think of the UAE. This partially owes to the fact that it is quite complicated to establish a business and open bank accounts in the region. For a long time, you could hardly get anything done without physically being there to introduce yourself and gain the trust of the locals.
But meanwhile, free trade zones have started to attract foreign businesses. These free trade zones offer excellent opportunities for entrepreneurs and people in sales.
If you incorporate a corporation in a free trade zone, your business won’t just be tax-free, but the founder and their family will have the right to a tax-free residence in any part of the Emirates.
Corporations from the UAE free trade zones are great vehicles for international tax structuring and will soon receive the attention they deserve. However, in the UAE the establishment and administration costs are high; we’re talking about contributions of at least five figures (which isn’t exactly economical).
The reputation of the UAE
Luckily, there are many advantages of the UAE to enjoy that involve paying much less money, since its good reputation as a free trade zone gives you further options across the Emirates.
As you now know, offshore companies in Ras al-Khaimah don’t pay taxes. However, this area isn’t an exception within the UAE, which is one of a few jurisdictions where you generally don’t pay taxes unless some exceptional law applies to a specific area. The UAE is one of 23 countries throughout the world where there are no direct taxes.
Unlike States like the Bahamas, Cayman Islands or Bermuda, all places that are known for shell companies, the UAE is an economically robust country with lots of industry.
The Emirates are home to some of the busiest ports in the world and house multinational exporters in all sectors.
This all makes the UAE’s reputation very different than that of the other Caribbean islands, and although not every free trade zone reaches the same international standards, it is well tolerated. Ultimately, the United Arab Emirates is an important partner with the United States, Europe and China in the fight against radical Islamic terrorism.
RAK International Companies
In addition to a good reputation (which is fundamental), offshore corporations from Ras al-Khaimah (RAK) aren’t very different than those in other jurisdictions. Along with the tax-exemption, there aren’t regulations on how to keep accounts, nor are there mandatory public registers, nor do you have to pay out the company’s social capital. Also, the partner and director can be the same person and don’t have to reside in the Emirates.
With respect to discretion, businesses in Ras al-Khaimah are better off than in other offshore jurisdictions. Foreign tax authorities try in vain to find the economic beneficiaries of these offshore companies. Yes, the Emirates has signed an automatic information exchange agreement, but this has no consequences in practice.
In the end, among the many loopholes, there is a clause stipulating that free trade zones are exempt from this information exchange. And it’s precisely within one of these zones that you can establish an RAK International Company.
It’s important to note the fact that this is an International Company (IC), not an International Business Company (IBC). With this step alone, your business is in a totally different position, far removed from the bad reputation of the numerous IBCs from classic offshore jurisdictions.
Another advantage is that invoices are generally marked as being for a limited company, not an IC. Offshore businesses in Ras al-Khaimah are distinguished as being limited liability corporations, recognized worldwide, and can bill clients from Spain, Mexico, the US, Argentina and wherever else without problems.
This is also due to the impossibility of being able to discover who is behind a Ras al-Khaimah corporation because the company address that appears on the invoice is rarely an address in Ras al-Khaimah.
Instead, start-up agencies are usually found in Dubai or Abu Dhabi, places where there is no offshore legislation.
Offshore businesses from Ras al-Khaimah can, in practice, simulate a legitimate FTZ business from Dubai, for example, if it has its commercial address there.
There is also the unique possibility of using a different jurisdiction than Ras al-Khaimah for some operative aspects of the business, like with local corporate law.
This way, you can attract investors who don’t trust RAK businesses by using different legislation or legally simulating corporate headquarters in another country. That said, you have to keep in mind that the local authorities of the respective country don’t have an obligation to deal with eventual litigation if the company wasn’t established there.
Bank accounts and PayPal for businesses from Ras al-Khaimah
One of the many motives for deciding on an RAK businesses is the possibility of participating in the region’s very stable banking systems. Ultimately, banking is complicated within the Emirates and it’s almost always necessary to have a domicile to open accounts.
In contrast, with an offshore business in Ras al-Khaimah, you can open a business bank account in any part of the UAE and benefit from Abu Dhabi and Dubai’s banking advantages. This is especially noteworthy for entrepreneurs who hail from Islamic cultures, like Morocco or Turkey, who are having problems doing business in Turkey or withdrawing money because of the current political climate.
The country and its banking system are very stable. Its currency, the United Arab Emirates dirham, is pegged to the US dollar at an exchange rate of USD 1 to AED 3.6725. Together with the high level of confidentiality, the IBAN standard and modern banking, opening an account in the Emirates can be a very good opportunity.
Unfortunately, it’s absolutely necessary for you to be there to open it, as well as to have long-term personal contact with a bank agent.
People who don’t want to go through banking in the UAE will have difficulty opening up an account outside the country. This is because the Emirates aren’t part of the UN’s Apostille Convention, which standardizes the process for legalizing foreign documents. Thus, certifying business documents can be a long, difficult job and needs to be legalized by an embassy.
Anyone who needs PayPal for their business will have struck gold with an RAK business. Usually, PayPal is problematic for offshore businesses, but here this isn’t the case. In other jurisdictions it is difficult to collect PayPal payments without having to pay a large commission. Almost always, you need a US account if you can’t provide a local one.
For example, if you established your business in Hong Kong but you don’t have a bank account there, you should think about moving your business to Ras al-Khaimah, which has similar prices but many more advantages.
In the end, you can transfer your PayPal balance to any prepaid credit or debit card you have.
Establishing a company in the Emirate State of Ras al-Khaimah (RAK)
The body responsible for the establishment of offshore RAK companies is RAKIA, the Ras al-Khaimah Investment Authority (investment body). International Companies (ICs) are part of Ras al-Khaimah’s free trade zone but are run as non-residential.
What this means in terms of administration of a company is that an IC-RAK doesn’t require a physical presence, but it also can’t do business within the Emirates. If you want to build a warehouse within the free trade zone, you will need to turn to an FTZ company, another type of company that I may explain in a future article.
The start-up process doesn’t go through the Investment Authority, but rather an incorporation agency. The requirements for establishing a company in Ras al-Khaimah are relatively strict.
Thus, when establishing it, it’s required that you present a legalized copy of your passport and an original utility bill. Today, this is needed for the majority of bank accounts anyway, but it is an extra obstacle when establishing a company for those who don’t have a domicile.
Ras al-Khaimah start-up costs using Tax Free Today
Tax Free Today offers to establish an offshore RAK company for you for €2,640. The annual administration fees are €2,020.
Intermediary services to get a company bank account there will also have an additional fee, because the reasons we previously listed make it more expensive than usual. For an additional €565, we’ll put you in contact with the following UAE banks: Mashreq Bank (€6,250 minimum deposit), Noor Bank (€2,500 minimum deposit), Emirates N.B.D. (€50,000 minimum deposit), or RAK Bank (€25,000 minimum deposit).
All of these banks offer modern online banking in euros, British pounds, US dollars, and dirhams. However, in general you can only obtain a debit card if you have a domicile in the UAE. Whatever the case, to open your account you need to be physically present.
You can also open an international business account.
Instead of a Ras al-Khaimah address, it’s useful to have a virtual office in Dubai to garner more standing within the UAE. A commercial address with mail forwarding costs €355 annually, and your own telephone number with call forwarding costs €630.
Now, all you need to do is analyze how you would establish your business in Ras al-Khaimah and then write to us if you want our help.
An International Company in Ras al-Khaimah is an excellent opportunity, and the country is without a doubt one of the best options among offshore jurisdictions.
The ability to make an offshore RAK company look like an FTZ company with a residence in the UAE is a huge advantage that lets you benefit from Dubai’s stellar reputation. Plus, establishing your business there is considerably more expensive than in RAK.
How to register as a freelancer in the Emirates and stop paying taxes
To register as a self-employed person and obtain a visa in the RAK you will have to pay about 18,585 AED (4300€ approx.) in the first year.
From the second year onwards you will pay 8935 AEDs (approx. 2050€) per year. In addition to your passport and a brief curriculum vitae, you will need to present references from 2 (potential) clients or partners and a short business plan.
To maintain the validity of your visa you visit the UAE for at least 1 day every 183 days. It is not necessary to rent a house there. The visa is issued for a period of 2 years and can be extended as many times as you wish.
The self-employed plan allows you to open a private bank account in the Emirates.
Unlike most offshore companies, the invoices you issue as self-employed in the UAE are internationally recognised.
You are only required to keep accounts with income above AED 400,000.00 (approx. 91,000€), as in 2018 the obligation to charge 5% VAT was introduced from this threshold. However, you will only have to charge VAT on your sales within the Emirates, but not on international sales.
As a resident of the Emirates you can be an administrator and/or partner of as many offshore companies as you like, so you don’t have any need to invoice beyond the VAT threshold.
You are not required to file an income tax return or pay taxes.
Although the self-employed visa in the Emirates is not especially intended for investors or traders, they can also use it to avoid taxation on dividends or capital gains.
As you see, the small yet distinguished Emirate of Ras al-Khaimah offers all the classic offshore company advantages, plus a good reputation for invoices, safe banking, and complete PayPal functionality, it even offers oportunities for freelancers who want to live tax-free.
If you’re still unsure and you want us to look at your situation, you can book a consultation.