For many Dutch entrepreneurs, the potential for significant tax savings is a key motivator for moving their business operations to Dubai or expanding with a new entity.
Dubai, part of the United Arab Emirates (UAE), is known as one of the most tax-friendly locations in the world, with a favorable tax environment for entrepreneurs and businesses. This means zero percent tax on income, profits, dividends and royalties. For Dutch entrepreneurs, setting up a business in Dubai, especially in the Freezones, offers significant tax advantages. These benefits allow entrepreneurs to keep more of their profits, which in turn can be used to reinvest in their business.
Making a difference with efficient structuring
The key to maximizing these tax benefits lies in structuring your business efficiently. This includes choosing the right business form and the optimal location within Dubai's various Freezones or Mainland areas.
At Emirates & Co, we often focus on the setting up of companies within the Freezones of Dubai for our clients. This strategy offers numerous advantages, both tax and operational. Freezone companies enjoy 0% profit tax, income tax, corporate income tax, capital gains tax, dividend tax and royalty tax, providing a significant advantage for entrepreneurs seeking tax efficiency.
In addition to tax benefits, Freezones also offer other advantages, such as 100% foreign ownership, no requirement for a local partner, and a simplified incorporation process. This makes it an ideal choice for foreign entrepreneurs looking to expand their operations or enter a new market without the need to relocate.
Calculation example
Let's take an example of two entrepreneurs, one based in Amsterdam and the other in Dubai. Both achieve annual sales of €300,000 with €100,000 in operating expenses.
Based in Amsterdam:
- Dutch entrepreneur must have a DGA salary of €56,0001 pay out per year. Including employer expenses, the total cost can reach about €75,000.
- Income tax (36.97%) is charged on this salary; let's say about €17,897.
- From the remaining profit of €144,000 (€300,000 sales minus €100,000 expenses and €56,000 DGA salary), corporate tax is charged: 19% on the first €200,000, amounting to about €27,360.
- The remaining amount after corporate tax of €116,640 then undergoes income tax Box 2 (24.5% on the first €67,000, 33% above that), resulting in an additional tax of about €32,796.
- So the total after-tax income for the Amsterdam entrepreneur (including DGA salary) is about €121,947.
Based in Dubai (includes 9% corporate tax applicable to Mainland companies):
- The entrepreneur in Dubai enjoys an advantageous tax environment. The one-time initial cost of setting up a business in Dubai depends on the type of business: around €7,000 for a Freezone business and around €20,000 for a mainland business. In addition, there are annual costs associated with renewing the business license. For a Freezone company, these annual costs remain the same as the initial start-up costs, while for Mainland companies these costs vary between €7,000 and €8,000 per year.
- After deducting these costs from the profit of €200,000 (€300,000 in sales minus €100,000 in operating expenses), €182,000 remains.
- Because the 9% tax in Dubai is levied only on profits above approximately €89,400 (AED 375,000), in this scenario a portion of the profit would be subject to tax. If we assume the tax is levied on the amount above €89,400, the 9% tax would be applied to €92,600 (€182,000 - €89,400), resulting in a tax of about €8,334.
- So the final net profit for the entrepreneur in Dubai would be about €173,666. From the second year, there are no start-up costs, but you pay about €7,000 annually to renew your business license.
Conclusion: In this scenario, the entrepreneur in Dubai retains significantly more than the entrepreneur in Amsterdam, despite the recent introduction of corporate taxes in the UAE. This example highlights the potentially significant financial benefits of doing business in Dubai, even after the recent tax changes.
In the calculation example, we have included 9% corporate tax. This percentage is relevant for companies located on the mainland (mainland) of Dubai, as they are subject to corporate tax. Although Freezone companies are currently fully exempt from taxes, it is important to note that changes may be on the way. There are indications that Freezone companies may also have to pay corporate tax in the future. Although this tax is currently at 0%, we have included it in our example for illustrative purposes.
Interestingly, some business activities on the mainland are exempt from corporate tax. An example is income from real estate, which is not subject to this tax. Want to learn more about which activities are exempt from corporate tax or have other questions about business formation in Dubai? Then please contact with us for more information.
Legal Considerations and Compliance
While the tax benefits are significant, it is crucial to remain compliant with both local and international tax laws. Setting up a business in Dubai should be done with a clear understanding of the legal requirements and responsibilities. It is also advisable for Dutch entrepreneurs to seek advice from their own accountant.
Conclusion
Tax efficiency is a powerful incentive for Dutch entrepreneurs considering moving to Dubai or setting up a business there. By taking advantage of Dubai's unique tax advantages, entrepreneurs can significantly increase their profitability while enjoying the city's dynamic and growing business environment.
Are you considering a business in Dubai? We offer you a free strategy discussion to explore your business needs and opportunities in this dynamic market. This call is an ideal opportunity to answer your questions and discuss a customized approach to your success in Dubai.
In conclusion, the tax benefits in Dubai are an attractive opportunity for Dutch entrepreneurs. However, it is important to take a well-informed and thoughtful approach. In our next blogs, we will cover other important aspects of business formation in Dubai, such as the registration process, operational considerations and more about the city's dynamic business landscape.
- The usual wage for the DMS will increase to €56,000 in 2024 (was €51,000 in 2023) ︎
