Written by Vitaliy Chiryassov, CEO of UPPERCASE
The United Arab Emirates is an excellent choice for businesses. It has modern cities and developing infrastructure, creating an ideal business environment. This is especially true for trading companies.
In this article, we’ll discuss why the UAE stands out as the ideal location for trading businesses.
Why UAE is the perfect location for a trading business
Starting a trading company in the Emirates offers numerous benefits. The UAE is a leading trade and logistics hub. It is strategically positioned near major business routes that link the Middle East, Asia, Africa, and the EU.
Modern ports, air hubs, and an extensive road network ensure efficient transportation of goods. The country consistently tops global rankings for ease of doing business, underscoring its role as a significant international business hub.
What benefits are available for trading businesses in the UAE
Trading businesses in the UAE benefit from a range of advantages. They include:
1. Easy import rules
The UAE’s approach to trade is highly progressive, especially when it comes to importing goods. A key aspect of this is the establishment of Free Zones across the country. In these zones, foreign businesses can operate with complete ownership, which is a big deal considering that many countries often impose restrictions on foreign ownership. More importantly, within these Free Zones, goods can be imported, manufactured, and then re-exported without the burden of customs duties. This is a significant advantage over other countries where duties and taxes can add considerable cost to trading activities.
What’s more, platforms like the Dubai Trade Portal (available to founders who registered their business in the JAFZA freezone) allow traders to handle their import documentation entirely online. This digital approach cuts down on processing time significantly.
Distribution of goods or materials to or from a designated zone is a qualifying activity subject to 0% corporate income tax on its net income. There are various forms and practices of distribution of goods or materials in international trade.
2. Re-export opportunities
The UAE has more than 40 Free Zones, designed to cater to various industries including logistics, commodities, automotive, and more. Businesses operating in these zones benefit from 100% foreign ownership and zero taxes on imports and re-exports. This setup is particularly conducive to re-export operations, as businesses can import goods, store them duty-free, and then re-export without incurring the typical costs associated with these transactions.
3. You can trade under the UAE flag
When you register your trading company in the UAE, it essentially becomes a UAE-flagged entity.
This status is highly regarded globally due to the UAE’s reputation for a stable business environment, strong legal framework, and robust economic policies. Operating under the UAE flag can enhance the trust and confidence of your international partners and clients. They often view UAE-based companies as reliable and compliant with international business standards, which can be a crucial factor in establishing and maintaining business relationships.
4. Strategic location and infrastructure
The UAE’s geographic position is a key advantage. It’s located at the crossroads of Europe, Asia, and Africa, making it an ideal base for trading across these continents. The country has ports like Jebel Ali in Dubai and Khalifa Port in Abu Dhabi, which are among the most modern in the world, as well as a well-developed road network. This infrastructure makes transporting goods in and out of the country cost-effective and fast.
Another notable aspect is the UAE’s Authorized Economic Operator (AEO) program. If a business qualifies for this program, they receive benefits that include fewer physical inspections and priority treatment during cargo clearance.
5. Easy access to global markets:
The UAE’s network of trade agreements plays a crucial role in providing its trading companies with expanded market access and reduced trade barriers. A notable example of this is the UAE’s membership in the Gulf Cooperation Council (GCC). Through the GCC, the UAE is part of a Free Trade Agreement with the European Free Trade Association (EFTA), which includes countries like Switzerland, Norway, and Iceland. This agreement significantly lowers tariffs and eases trade barriers, making it more straightforward and cost-effective for UAE-based companies to do business with these nations.
In addition to multilateral agreements through the GCC, the UAE has also pursued bilateral trade agreements with various countries. These agreements are tailored to facilitate smoother trade between the UAE and these nations, often including clauses that reduce tariffs and simplify customs procedures. This makes it easier for UAE-based companies to export to and import from these partner countries. The specifics of these agreements vary, but they generally aim to foster trade by eliminating obstacles that typically hinder international business transactions.
6. Tax Benefits
One of the most notable tax benefits in the UAE is the ability to get a preferential income tax rate of zero percent. The zero rate currently applies up to AED 375,000. Above the zero-rate band, the main rate applies. This is a major advantage, as it allows businesses to retain a larger portion of their profits compared to operating in countries with high corporate tax rates.
Residents, both individuals and businesses, with revenue equal to or less than AED 3,000,000 in all current and past tax periods also qualify for small business relief, meaning they’re not taxed. Certain activities are also exempt from UAE Corporate Tax:
- Receiving dividends from a UAE resident company.
- Receiving dividends from a foreign company.
- Earning income from a foreign branch.
- Earning Income from operating aircraft or ships in international transportation.
The corporate tax system primarily taxes profits. To be deductible from taxable profits, expenses must be incurred solely for the business or must be income, not capital.
Free Zones have their own tax rules outlined in Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023. Transactions within Free Zones are taxed at 0%, except for certain excluded activities like transactions with individuals or non-qualifying activities. Transactions with non-Free Zone entities are taxed at 0% for qualifying activities only, such as manufacturing, trading, and investment. All other activities within the non-Free Zone are taxed at 9%.
The Free Zone Person generating qualifying income is considered to be a qualifying Free Zone Person (based on self-assessment). The tax rate for qualifying income is 0%. It is allowed to generate a non-qualifying revenue for the qualifying free zone as long as it responds to de minimis requirements – the non-qualifying revenue of the person must not exceed the lower of the following amounts: AED 5,000,000 and 5% of the total revenue.
Another key aspect is the Value Added Tax (VAT), which is relatively low in the UAE at 5%. This rate is considerably lower than the VAT rates in many other countries, where it can be as high as 20%. For trading companies, this lower VAT rate can make a significant difference, particularly in terms of cash flow and pricing strategies. It’s important to note that certain goods and services are exempt from VAT, and businesses can often reclaim the VAT they’ve paid on goods and services that are used in the course of their business.
What’s more, in Free Zones, companies benefit from additional tax advantages like exemptions from import and export duties, which is particularly relevant for trading companies.
7. State Support
The UAE government is highly supportive of trade. The Emirates offers robust investment protection and fair competition opportunities. It has established equal trading conditions for both local entrepreneurs and foreign businessmen. The country is also famous for various incentives like financial grants, subsidies, and support services.
Conclusion
Running a trading business in the UAE can be highly successful, but it requires careful planning and the right strategy.
When setting up in the Emirates, selecting the appropriate company type and planning your business activities are crucial steps. Deciding between a Mainland location and a Free Zone can significantly affect your business. It’s important to precisely choose the activities listed in your license to align with your business plans.
Consider working with experienced business consultants. They can assist in setting up your trading company and guide you through these nuances.