A complex analysis of tax law to organise a business efficiently in the UAE
The team of our Middle East Desk advised a major manufacturer of metal on the possibility to apply the 0% corporate tax rate to the profit from the trading of rolled steel as well as services aimed at managing capital and investments in relation to affiliated legal entities.
Our lawyers analysed the benefits for trading in qualified goods, distribution out of/into a Designated Zone, the services of the headquarters, treasury and financial services in relation to which the zero rate is applied, as well as the issue of whether it is reasonable to split the businesses between the companies (if it is possible to apply the 0% corporate tax rate to one business but impossible to apply this rate to another business).
Our experts provided recommendations regarding the options for organising business in the UAE which would lawfully allow the use of the 0% rate for trading as well as for other activities, and regarding compliance with the ‘adequate substance’ requirements, ‘de minimis’ requirements and other requirements which must be complied with in order to fulfil the conditions for applying the 0% corporate tax rate.
The project was especially important as our recommendations took into account the Pillar II effect in relation to the zero corporate tax rate. The UAE plans to join Pillar II starting from 2025; however, many other countries have joined this initiative as early as from 2024. For those UAE companies that are part of a group with a turnover of EUR 750 million and more (for the group), Pillar II issues are relevant as early as in 2024 if the ultimate parent company of the group is located in a country which joined Pillar II starting from 2024. Such company will have to pay top-up tax on the difference between 15% and the amount of tax payable in the UAE.
A complex analysis of the tax law of the Emirates and international tax law helped our client to take an efficient decision concerning the organisation of its business in the UAE.