Investment Incentives UAE: Discover Tax Benefits and Opportunities in Dubai

Investment Incentives UAE is specified as a worldwide investment magnet, providing a one-of-a-kind set of incentives designed to help small and medium-sized businesses (SMEs) and startups, offer incentives to the underrepresented investor, and offer green investment. By removing investment obstacles, the UAE aims to diversify its economy and position FDI as a fundamental engine of national development announced the foreign direct investment development programme. Here are some of the unique features and zones/free ports incentives investments that make investing in the UAE an appealing option.

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Investment Incentives UAE

Since its inception in 1971, the UAE has established itself as the Arab world’s economic capital by creating an enabling economic and corporate environment. While it is commonly known that the UAE provides incentives to the private sector through tax breaks and laws, the UAE has increasingly focused on offering significant investment incentives for key industries and geographic areas. To learn more about sector-specific incentives, please see our briefs on the UAE’s current objectives.

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Tax Credits & Incentives

Credit is possible for foreign taxes paid on a UAE-taxable person’s income. The foreign tax credit is restricted to the amount of CT owed on the applicable income. Any unused foreign tax credit cannot be carried forward or back and will eventually be lost.

The UAE CT Law provides tax breaks for small enterprises. A tax resident person may choose to be considered as having no taxable income if the revenue for the relevant and prior tax periods does not exceed AED 3 million in each relevant tax year. If the threshold is surpassed, the taxable person will be subject to UAE CT at the applicable rates as outlined in the CT Law. The aforementioned income level will be applicable beginning on or after June 1, 2023.

However, it will only apply to subsequent tax periods ending before or on December 31, 2026. If a tax resident person asks for “small business relief,” certain sections of the CT Law will not apply.

Exempt income, reliefs, deductions, tax loss relief, and transfer pricing compliance requirements are all stated in the CT Law’s relevant chapters. The FTA may seek any relevant records or supporting information to verify compliance within a time frame (to be confirmed). If a taxable person purposefully divides their business only to achieve the AED 3 million level and chooses not to be subject to UAE CT, the FTA may make compensatory adjustments to the taxable person’s UAE CT liability.

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Transfers Within a Qualification Group

The UAE CT Law allows for tax relief on intra-group transfers of assets or liabilities between taxable individuals who are members of the same eligible group. Taxable individuals will be recognized as members of the same qualifying group if all of the following conditions are met: The taxable individuals are tax-resident entities or non-residents with a permanent establishment in the UAE.

The taxable individuals with at least 75% common ownership have the same fiscal year and compile their financial statements using the same accounting rules. None of the taxable persons are classified as exempt or QFZP.

There is a two-year clawback period from the date of the initial transfer if such asset or liability is later transferred outside the permitted group or if the transferor or transferee no longer belongs to the permitted group.

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Business Restructuring Relief

The UAE CT Law, like the intra-group transfer of assets or liabilities within a qualifying group, provides tax relief on mergers, spin-offs, and other corporate restructuring transactions in which the entire or an independent part of the business is transferred in exchange for shares or other ownership interest, provided the following conditions are met:

• The transfer follows the regulations in the United Arab Emirates.
• The taxable persons are either residents or non-residents with a permanent establishment in the UAE.
• None of the individuals are classified as exempt or QFZPs.
• They share the same fiscal year and generate their financial statements using the same accounting rules.
• The transfer is carried out on valid commercial or economic grounds.

If there is a subsequent transfer to a third party, or shares or ownership interests received are transferred or otherwise disposed of, there is a two-year clawback period from the date of the initial transfer, and the gains or losses on the initial transfer are reported in the period in which the subsequent transfer is made to the third party.

Companies registered in Free Zones (FZs) are taxable under UAE CT Law and must comply with regular regulations, including transfer pricing. However, if a Free Zone entity meets the requirements to be classified as a Qualifying Free Zone Person (QFZP), it should be eligible for a 0% UAE CT rate on its qualifying income. A QFZP’s non-qualifying income will be taxed at a rate of 9% CT. To be eligible for the 0% UAE CT rate, a QFZP must fulfill all of the following requirements:

• Be a Free Zone person (a legal entity formed, founded, or registered in a Free Zone, including branches).
• Maintain appropriate substance in the UAE (free zone).
• Determine eligible income.
• Not have elected to be subject to the regular UAE CT regime.
• Follow all transfer price rules and documentation requirements.
• The non-qualifying revenue does not exceed the de minimis threshold.
• Compiles audited financial accounts.

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Adequate Substance

To maintain adequate substance in a Free Zone, the QFZP’s core income-generating activities (CIGAs) must be carried out in a Free Zone, and the QFZP must retain adequate assets, a sufficient number of qualified personnel, and an adequate level of operating expenses. The QFZP may choose to outsource its CIGAs to a related party in a Free Zone or a third party in a Free Zone, with the QFZP providing proper supervision of the outsourced activities.

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Qualifying Income

The qualifying income includes the following:

• Income earned from exchanges with other Free Zone residents, excluding income from ‘excluded activities’.
• Income earned from transactions with non-Free Zone individuals, but only for ‘qualifying activities’ that are not ‘excluded activities’.
• Income earned through the ownership or exploitation of qualifying intellectual property (IP).
• Any additional income that meets the de minimis standards for the QFZP.

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Excluded Activities

Excluded activities include the following:

• Transactions involving natural persons (except for some “qualified activities” linked to shipping and airplanes, as well as fund, wealth, and investment management).
• Banking, finance, leasing, and insurance activities are all subject to regulation.
• Ownership or exploitation of immovable property, except for transactions with Free Zone residents involving commercial property located in a Free Zone.

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Qualifying Activities

Manufacturing or processing of products or materials.

• Trading with qualified commodities.
• Holding stock and other securities for investment reasons.
• Owning, managing, and operating ships.
• Reinsurance, fund management, wealth, and investment management are all regulated activities.
• Provides headquarters, treasury, and financing services to associated parties.
• Financing and leasing airplanes.
• Logistics.
• Distribution of products or materials in or from a Designated Zone to a customer that sells, processes, or modifies such goods or materials, or components thereof, for sale or resale.
• Any activities that are auxiliary to the tasks described above (i.e., provide no independent role yet are required to complete the main qualifying activity).

The action of distributing goods or materials must occur in or from a specified zone, and products or materials entering the state must pass through the designated zone. Unless otherwise specified, the meanings of the listed excluded and qualifying activities shall be determined by the laws that govern these activities.

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De Minimis Requirements

The de minimis standards will be met if non-qualifying revenue does not exceed 5% of total revenue or AED 5 million, whichever is less. Non-qualifying revenue is revenue produced from excluded or non-qualifying activity in which the other party is not a Free Zone person.

Certain revenue will not be included in the computation of non-qualifying revenue or total revenue. This comprises earnings from some immovable property located in the Free Zone (non-commercial property and commercial property with non-Free Zone transactions) as well as revenue from the ownership or exploitation of intellectual property. It also includes revenue attributed to either a domestic or international PE.

If a Free Zone person fails to meet any of the qualifying conditions outlined in UAECT Law and the relevant Decisions, it will be classified as a taxable person subject to a 9% CT rate for at least five tax years.

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Domestic PE

The Decisions introduce the idea of a domestic PE, which occurs when a QFZP has a commercial location or other type of presence outside the Free Zone in the UAE. Income attributable to a domestic PE should be assessed as if the institution were a separate and independent person, subject to 9% CT.

However, it will not prohibit the Free Zone resident from receiving a 0% CT rate on eligible income or being considered in the de minimis test (as described above). A mainland branch of a QFZP is therefore generally considered a domestic PE and is liable to CT at 9%.

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Benefits of Investment Incentives UAE for Investors

The United Arab Emirates (UAE) has established itself as a global investment magnet by providing a unique set of incentives designed to encourage small and medium-sized enterprises (SMEs) and start-ups. By removing investment obstacles, the UAE aims to diversify its economy and position FDI as a fundamental engine of national development. Here are some of the unique features and incentives that make investing in the UAE an appealing option.

100% Company Ownership

One of the most compelling reasons to invest in the UAE is the flexibility it provides for investors of all nationalities to form and fully own businesses. This option, made possible by the 2020 Commercial Corporations Law, enables foreign corporations to operate without the need for a UAE national agent. This huge improvement has increased the UAE’s appeal as a commercial destination.

More than 40 Free Zones for Company Incorporation

The UAE has more than 40 free zones that offer tax breaks and 100% ownership to foreign companies. These zones are strategically situated around the country, allowing firms to choose the most appropriate site. Each free zone promotes a wide range of economic activities to meet the various demands of businesses.

Diverse Investment Opportunities

Investors in the UAE can invest in a variety of areas, including trade, industry, agriculture, services, education, health, and construction. With nearly 2,000 approved economic activity, the UAE has few restrictions, allowing investors to explore a variety of opportunities.

Flexible Legal Structures

The UAE’s Federal Law No. (26) of 2020 on Commercial Companies allows investors to choose from many legal forms, including public and private shareholding companies, limited liability corporations, limited partnerships, and partnership businesses. This flexibility enables investors to select the best structure for their business.

There is no necessity for local sponsors. The UAE Commercial Firms Law enables foreign companies to operate in the UAE without the need for a local national sponsor or agent. This initiative streamlines the business process and improves transparency, giving international companies a strategic advantage.

Control Over Company Boards

The UAE Commercial Enterprises Law gives foreign investors control over their shares in joint-stock enterprises. The chairman and the majority of the board do not have to be nationals, allowing investors to efficiently manage their firms.

No Minimum Capital is Needed

In the UAE, limited liability businesses do not have to meet any minimum capital requirements. Investors can specify the capital value in their articles of incorporation and company statutes, making it easier to create new firms and plan projects more freely.

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Tax-free Environment and Profit Repatriation

Individuals, investors, and corporations are exempt from income tax in the UAE, except for oil companies and international bank branches. The UAE is an attractive investment destination due to its tax-free environment and the opportunity to completely repatriate revenues.

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Golden Visa for Investors

Investors, entrepreneurs, and talented individuals can apply for long-term residency visas that last between 5 and 10 years in the UAE. These visas enable expatriates and their families to live, work, and study in the UAE, hence promoting corporate development and progress.

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Skilled Workforce and Talent Attraction

The UAE is well-known for its flexible labor policies and ability to recruit skilled workers and experts. This creates an excellent climate for businesses to attract and retain the human capital required to grow.

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Low Customs Tariffs

 With customs taxes ranging from 0% to 5%, the UAE serves as a global commerce hub. The country ranks third in the world and first in the Arab world in terms of re-exports, highlighting its strategic importance in international trade.

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Industrial Sector Incentives

The UAE provides competitive incentives for investment in the industrial and technological sectors. These incentives, developed in collaboration with the Emirates Development Bank, include competitive financing facilities, energy tariff reductions, customs exemptions on machinery and raw materials, and initiatives like as the “In-Country Value (ICV) Program” and the “Make it in the Emirates” campaign. These projects aim to strengthen and integrate the local industrial sector.

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Investment Incentives UAE plays a pivotal role in fostering an attractive economic landscape. With zero tax regimes, green investment incentives, and the establishment of Foreign Trade Zones and Free Ports, Dubai and the Emirate of Abu Dhabi present many opportunities for many businesses. The United Arab Emirates continues to innovate its policies to create a supportive environment for foreign investors, ensuring long-term growth and sustainability. Embracing these incentives can open doors to lucrative ventures in one of the world’s most dynamic markets.