UAE, and the larger GCC now stands at the cusp of enormous possibilities. Realizing this untapped potential as a Global Hub, the UAE economy has been swept away, for the better, with a series of economic reforms over the last few years.
All this to further the interests of Entrepreneurs positioning to capture untapped markets globally. In this ultimate guide to navigating UAE tax residency for Indian Entrepreneurs in 2023, we answer the most common questions that tend to bother our Indian Clientele when they first set out to explore company setup in the UAE.
This guide provides comprehensive insights into the concept of tax residency mainly
- the benefits,
- the processes involved,
- management of tax obligations,
- avoidance of double taxation, and
- strategic tax planning.
Let’s jump in.
Stepping over geographical borders is a common feat for a bigger piece of Market Pie and Revenue for startups and other businesses alike. For Indian entrepreneurs gravitating towards the blossoming business environment of UAE, it’s crucial to have a clear understanding of the UAE tax residency.
For Indian entrepreneurs, factors such as the duration of stay, economic interests, and habitual abode play a critical role. Understanding each of these elements helps in determining your eligibility and streamlining obligations for setting up a successful business in the UAE, right from the start.
Taking a closer look at UAE Tax Residency for Indian Entrepreneurs
To simplify, Tax Residency is how your tax obligations are determined in the UAE, which depends on whether you can be considered a resident, or a non-resident in a particular jurisdiction, specifically for the purpose of calculating your tax liability.
Tax residency, essentially the jurisdiction where you’re taxed, based on your fiscal domicile, holds significant importance in the UAE.
Fiscal domicile is nothing but a more legally technical way of implying tax domicile or tax residency, which is as we discussed earlier, is the jurisdiction where an individual or business is considered a resident for tax purposes. It is the basis on which a person or entity is subject to the tax laws and regulations of the particular jurisdiction.
UAE Guidelines for Tax Residency
The UAE Cabinet Decision No. 85 of 2022, effective from 1st March 2023, provides definitions and guidelines for determining an individual’s or a legal entity’s qualification as a UAE Tax Resident.
The UAE criteria for getting tax residency is simple:
Must be present for 90 days or more in a given calendar year with effect from April 2023
This is one of the most basic criteria that needs to be satisfied by the individual to be considered a Tax Resident in the UAE.
Intention to Reside
Even if you don’t meet the 90 day rule right-off-the-bat, all hope is not yet lost. Earlier, you had to showcase your intention to permanently reside in the UAE by having a “permanent place of residence” and ensure that the place was continuously available. However that has now changed for the better thanks to the The UAE Cabinet Decision No. 85 of 2022.
The process of Tax Residency has now been simplified. The UAE no longer mandates owning a ‘permanent place of residence’ in the UAE for individuals. However, there are other criteria involved which includes obtaining a UAE residency visa that can be obtained through employment, property ownership, or setting up a business, followed by acquiring a Tax Residency Certificate from the UAE Ministry of Finance.
Path to Tax Residency: Steps for Indian Entrepreneurs in the UAE
Tax Residency through Company Setup in the UAE
Realizing its importance as the Global Gateway and the Hub of International Markets, UAE has introduced several reforms that encourage investors and entrepreneurs to come and settle down.
And so one of the most popular ways for Indian Businessmen to establish tax residency in the UAE by company setup. Company setup in the UAE includes:
- Free Zone Company Setup (100% Ownership)
- Mainland Company Setup (100% Ownership)
- Offshore Company Setup (Not eligible for Tax Residency)
Benefits of UAE Tax Residency for Indian Entrepreneurs
Being a tax resident in the UAE presents Indian entrepreneurs with a myriad of benefits. From tax exemptions on personal and corporate incomes to relief from withholding taxes, the tax landscape in UAE is designed to fuel entrepreneurial growth. The absence of capital gains tax and wealth tax furthers the advantages, offering Indian entrepreneurs greater resources for reinvestment into their business ventures. In addition, the superior standard of living and schooling adds joy to the life of employee families as well.
Tax Benefits
Indian residents who have tax residency in the UAE can take advantage of an array of tax privileges. These include the absence of personal income tax, wealth tax, capital gains tax, and inheritance tax. Essentially, the Double Taxation Agreement between India and the UAE allows Indian nationals to reap significant financial benefits, leading to an increase in disposable income.
Commercial Prospects
Gaining tax residency via forming a company in the UAE presents Indian citizens with the opportunity to leverage the vibrant business scene in the UAE. With its strategic geographical positioning, sturdy infrastructure, and multifaceted economy, the UAE offers an optimal platform for business expansion.
Business Conduciveness
Ranked high globally for its business-friendly environment, the UAE offers an uncomplicated process for setting up a business. Efficient administrative services, streamlined procedures, and regulations that favour investors contribute to an expedited market entry and seamless business execution.
Unrestricted Profit Transfers
Indian citizens can seamlessly transfer earnings from their UAE enterprises without any limitations. This provides them with the flexibility to effectively control and reinvest their income.
Staying on Top by Managing Tax Obligations & Compliance
As a UAE tax resident, specific tax obligations are to be adhered to. These include
- maintaining accurate records,
- timely tax returns,
- and tax payments
Understanding these obligations, the tax filing procedures, and payment requirements is paramount to avoid penalties and ensure smooth business operation. Consulting experienced tax consultants in UAE well-versed with both UAE and Indian economic landscapes such as those at Horizon Biz Consultancy can help you navigate this process seamlessly.
How to avoid Double Taxation as an Indian Entrepreneur in UAE
For Indian entrepreneurs, avoiding double taxation – avoiding “paying taxes in both India and the UAE” – is crucial for cash flow management as well as optimizing profitability and expenses.
The Double Tax Avoidance Agreement (DTAA) between India and the UAE, signed in 1992, provides relief by offering tax credits in India for taxes paid in the UAE by Indian Entrepreneurs.
This agreement is applicable to identical taxes on capital or income that is imposed at the State or Federal level by either the place of tax or the Contracting State.
The India UAE DTAA covers various taxes, including
For UAE
- Corporation tax
- Income tax
- Wealth tax
For India
- Wealth Tax
- Income Tax including surcharges incurred in India
It prevents corporations from paying income tax, wealth tax, and surtax twice, especially if they are already taxed in India. This avoids income from being taxed twice, ensuring business operations can flow seamlessly across borders.
There is a streamlined tried-and-tested method tax consultant experts at Horizon utilise, get in touch for more information on this.
Specific provisions in the DTAA also deal with taxation on different types of income and capital gains. For instance, interest is taxed in the state where it arises and will not exceed specific percentages. Dividends and royalties are also subject to taxation rules under the DTAA.
The DTAA provides significant benefits for both India and the UAE.
For UAE, it protects investment from different non-commercial risks and ensures fair compensation for investors. On the other hand, for India, it improves the scope of foreign investment and boosts economic progress, thereby resulting in increased investment, technology transfer, and job creation in India.
How to Optimize Taxes through Smart Planning for Company Formation in UAE?
In order to maximize tax efficiency as a UAE tax resident, strategic tax planning is key. Elements such as structuring business operations, managing investments, and capital allocation significantly influence your tax liability.
Leverage these strategies to maximize profits while ensuring complete adherence to all tax regulations.
How to take the Next Step for tax residency in the UAE through company formation?
At Horizon Biz Consultancy, Dubai, we have spent years equipping South Asian, especially, Indian Founders with the right insights and knowledge to establish tax residency successfully. We offer detailed insights based on your specific goals, objectives and circumstances on which type of company formation – Free Zone, Mainland, Offshore would be ideally suited.
In addition, we are expertly equipped, when it comes to streamlining documentation, corporate restructuring and getting you set up with the right connects at the right places.
If you have read this so far, you might need additional assistance to get clear straightforward insights on getting tax residency through company formation in the UAE.
This next step is easy and catch free. Start with giving us a call on +9715 010 42665 for an in-depth yet free consultation of 30 minutes where we attend to your queries. Then, you can embark on your UAE entrepreneurial journey armed with knowledge.
Get in touch with us to clarify your doubts and let our expertise steer your business towards new horizons.
