How Corporate Tax Affects Offshore Companies in the UAE
The introduction of corporate tax in UAE marked a historic shift in the country’s fiscal landscape. For decades, the UAE was known for its tax-free environment, attracting thousands of global investors to its offshore jurisdictions. Now as businesses across the country adjust to corporate tax in the UAE, there is one key question that arises: What does the introduction of corporate tax mean for offshore companies registered in the UAE? To address the question, it is important to assess the structural framework of offshore companies and how income within the precincts of this jurisdiction is assessed under the new law.
Offshore company formation in the UAE
An offshore company formation in the UAE permits investors to hold international assets, conduct business across the globe, without the requirement of holding a physical presence in the UAE. Some popular jurisdictions include RAK ICC and Jebel Ali Free Zone (JAFZA).
These offshore entities were primarily structured for conducting business activities outside the UAE. Typically, an offshore company cannot trade within the UAE market or lease office space. This factor of differentiation is key to understanding how they operate and how they interact with corporate tax.
Corporate tax in the UAE
Corporate tax in the UAE is applicable to businesses that conduct business and earn income within the country. The standard rate is 9% of taxable profits exceeding AED 375,000. Income below the mentioned threshold is exempt. However, the law carves out several exemptions and exclusions, particularly for entities that do not derive income from the UAE mainland.
As per guidelines set by the UAE Ministry of Finance, a company’s residency and source of income are the two determining factors for tax liability. Offshore companies, by nature of their structure, are considered as non-resident entities, unless they have management in the UAE or generate local revenue.
Do offshore companies have to pay corporate tax?
Offshore companies are not subject to corporate tax in the UAE as long as
- They do not conduct business with the UAE Mainland
- Their income is derived solely from outside the UAE
- They do not maintain a permanent establishment or place of management within the UAE.
To put things into perspective, a RAK Offshore company holding property or shares in a foreign jurisdiction would generally fall outside the scope of UAE corporate tax. However if the company were to provide services to Mainland clients or manage operations within the country, it could be deemed to have a UAE connect, thus triggering tax obligations.
This is why many offshore companies are now re-evaluating their structure. What once seemed like a straightforward tax-free setup may now require even more stringent compliant protocols and documentation to prove foreign source income.
So how can offshore companies stay compliant?
Offshore companies need to start by assessing if they meet the permanent establishment criteria under the tax law. They also need to maintain proper documentation that will help them prove offshore income. It will also benefit them to review double taxation treaties between the UAE and other jurisdictions to ensure efficient tax positioning.
Despite these new layers of compliance, the UAE continues to remain one of the world’s most favorable jurisdictions for offshore structuring. Offshore companies still offer unmatched benefits like 100% foreign ownership, robust privacy laws, low setup costs and access to global banking and trade routes.
For investors managing international portfolios or cross border assets, offshore entities continue to serve as powerful vehicles for asset protection and tax efficiency, as long as they are structured with professional guidance and maintained in accordance with evolving UAE regulations.
