Free Trade Zones

How Dubai’s tax laws attract both businesses and talent – business & finance


KARACHI: Dubai’s tax laws are not only aimed at promoting investment, but also attracting top talent, leaving room for tax optimization that can help redirect finances to research and development as well as expansion, according to experts.

There are many factors that attract business, and therefore talent, to Dubai and arguably the most important of these is its tax exemptions, they said.

Importantly, unless you are an oil company or a foreign bank, you pay 0% corporate tax (in perspective, Pakistani companies pay around 29% corporate tax, while those in the U.S. US and UK pay around 20%), which means companies have more flexibility as to what to do with their earnings.

“Dubai’s tax exemptions provide businesses with an important tax optimization factor through which they can redirect tax savings towards research and development, hiring and investment,” said Achraf Drid, Managing Director of XTB Middle East, a global currency brokerage firm. Business recorder.

The company’s subsidiary, XTB MENA Limited, only recently obtained a license from the Dubai Financial Services Authority (DFSA) after incorporating its new subsidiary at the Dubai International Financial Center (DIFC) in January 2021.

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“The excess cash that companies can keep allows them to seek new sources of growth. As a result, these tax exemptions help businesses thrive.

Last year it was announced that all companies operating within the Dubai Multi Commodities Center – one of the largest free trade zones in the world, with over 16,000 registered companies across a wide range of sectors, including agribusiness, energy and financial services, diamonds and gold – would be exempt from taxes, including income tax, for 50 years.

In addition, the UAE has agreements with most of its trading partners, which means companies do not have to pay double taxation on overseas investments. Double taxation occurs when similar taxes are imposed in two countries on the same taxpayer on the same tax base.

Tax laws also play another key role in Dubai: they attract top talent from around the world.

Part of the reason is that exemptions leave more revenue for companies to spend on recruiting and offering competitive wages.

And in part because there is no income tax or even inheritance tax or stamp duty (in the UK, for example, the stamp duty ranges from 2% to 12 % when buying a property), a factor that attracts expats in droves.

The talent pool that is attracted “provides the necessary skills and helps businesses grow.” Often, cities with a low concentration of talent find it difficult to grow their businesses and economies, ”said Drid.

One of the most significant changes to Dubai’s tax laws in recent times has been the 5% VAT which came into effect in January 2018 to reduce the city’s dependence on oil revenues. The tax is applicable to companies whose supplies and taxable imports exceed Dh 375,000.

This could often mean that end users of goods and services end up paying higher taxes, but the rate is still much lower than the rest of the world. It enables Dubai to make changes, such as upgrading its infrastructure, which can benefit businesses in the long run, and promotes transparency in businesses.

An article in the Khaleej weather called the move a “masterstroke” because it allowed the UAE government to raise 27 billion dirhams in the first year alone, but was small enough to have minimal impact on businesses and residents.

The article also pointed out that Dubai’s agile policy making has played an important role in minimizing the negative impact of VAT on certain sectors. An example would be the diamond, gold and jewelry industry which make up a large part of Dubai’s non-oil economy.

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Following the introduction of the VAT, imports of rough diamonds fell by 33% and exports by 26%.

The government was quick to approve a reverse charge mechanism for VAT on commercial transactions between registered dealers “and thus succeeded in protecting the UAE’s position as a strategic trading center with only a small amount of reputational damage caused by the first five months of VAT uncertainty. ”.

Meanwhile, Drid noted that in addition to taxes, “Dubai attracts businesses and individuals with its continued modernization efforts by simplifying administrative procedures and lowering the overall cost of doing business.”

He said initiatives to create industry-specific zones are also helpful, as are frequent investment programs.

Culturally, he said, “the city is increasingly becoming a global hotspot and a cultural melting pot, which attracts skilled people from all over the world. The multitude of events, festivals and venues the city has to offer is a definite plus.

Mohamad Ibrahim, Regional Director of Exness, said Business recorder that “only a continued effort at modernization and reform could help a country stay at the forefront of global economic competition” and other countries can learn from how it has created the right economic and cultural conditions that help businesses to thrive and to make expatriate employees feel welcome.

Commercial copyright recorder, 2022