Establishing Companies in Dubai – The UAE

 

The United Arab Emirates underwent a fundamental transformation in June, 2023, when it introduced a nine-per-cent corporate income tax. Though the era of absolute tax freedom has ended, the UAE remains one of the most attractive business environments globally – provided you structure things properly.

 

A Company in Dubai? What You Should Know

The Era of Absolute Tax Freedom Has Ended

Today’s Emirates comprise a federation of seven distinct jurisdictions with more than forty-five free zones, each with its own regulatory framework. It’s an environment that rewards knowledge and punishes carelessness. The difference between zero-per-cent and nine-per-cent taxation often depends on seemingly minor decisions about where you register your company and how you conduct business.

June, 2023: The UAE introduced a federal corporate income tax:

• 0% on income up to 375,000 AED (~$100,000 USD)
• 9% on amounts exceeding the threshold

What does this mean for you?

This is not the end of the UAE’s attractiveness. It’s the beginning of a more sophisticated system in which:

• Real businesses – companies with substance – can still pay 0%
• Shell companies and paper entities pay the full 9%
• Success depends on proper structuring, not chance

The key change: The United Arab Emirates has moved from automatic exemption to a rules-based system. The benefits are available, but you must know how to achieve them.

 

 

Where in the UAE Should You Establish a Company?

The United Arab Emirates, despite what the name suggests, is not a homogeneous entity. It’s a federation of seven city-states, each ruled by its own hereditary monarch, each with its own economic strategy, each competing – sometimes subtly, sometimes openly – for foreign investment and international attention.

The Fundamental Choice: Mainland or Free Zone?

Every investment in the UAE begins with a crucial decision that determines not only taxation but the entire operational reality of the enterprise.

MAINLAND (Local Companies)

A mainland company means registration directly in one of the seven emirates – most commonly in Dubai or Abu Dhabi. Key features of this solution:

✓ Market Access:

• Unlimited right to operate throughout the UAE
• Government and local business contracts
• Direct sales to consumers

✗ Tax Cost:

• Subject to 9% corporate tax (above threshold)
• No possibility of zero rate

? When to Choose:

• Your market is UAE customers
• You need government contracts
• You sell locally

FREE ZONE

A free-zone company operates in a designated geographical area with special regulatory status. It’s characterized by simpler registration procedures, lower establishment costs, and – when certain conditions are met – the possibility of maintaining zero-per-cent taxation.

✓ Tax Benefits:

• Possibility of 0% tax (as QFZP)
• Simpler establishment procedures
• Lower operating costs

✗ Limitations:

• No direct access to mainland market
• Requires distributor/agent for local sales
• Strict compliance requirements for 0% rate

? When to Choose:

• You operate internationally
• Clients outside the UAE
• Trade, B2B services, finance, technology

Dubai remains a commercial colossus, an emirate that transformed itself over two generations from a village of fishermen and pearl divers into a global business hub. It hosts more than thirty free zones and serves as a regional financial and commercial center. Walk through the Dubai International Financial Centre on a weekday morning and you’ll find investment bankers from London, technology entrepreneurs from Bangalore, commodity traders from Geneva, all drawn by the same promise: a business-friendly environment with world-class infrastructure and access to markets stretching from North Africa to Southeast Asia.

But Dubai’s dominance is not absolute. Abu Dhabi, the capital, holds different cards. As the seat of the federal government and the center of the UAE’s oil wealth, Abu Dhabi attracts a different clientele: companies seeking government contracts, enterprises wanting relationships with the Abu Dhabi National Oil Company, businesses that value proximity to power over proximity to markets. The emirate hosts eight major free zones, each with distinct industrial focus, and maintains a more conservative, measured approach to development than its flashier neighbor.

The five Northern Emirates – Sharjah, Ajman, Ras Al Khaimah, Fujairah, and Umm Al Quwain – occupy an entirely different niche. They’re the Emirates’ budget options, offering significantly lower establishment and operating costs than their wealthy southern neighbors. For small and medium enterprises, particularly those targeting regional rather than global markets, the Northern Emirates offer compelling economics.

 

 

5% VAT in the UAE

In addition to corporate tax, the UAE has had a five-per-cent value-added tax since 2018. It applies universally, with one significant exception – twenty “designated zones” receive special treatment for goods transactions.

Basic VAT Rule in the UAE:

• 5% VAT on most goods and services
• Registration requirement at 375,000 AED turnover
• Quarterly or monthly reporting

Exception: 20 Designated Zones

For GOODS (not services) in designated zones:

• Import without VAT
• Transfer between zones without VAT
• Considered “outside the UAE” for VAT purposes

Conditions:

• Goods remain in zone OR are exported
• Cannot be consumed in mainland
• Rigorous documentation: customs declarations, movement certificates

Services always subject to VAT – even in designated zones.

 

Recent Reforms – Growing Flexibility

July, 2025, brought the “One Free Zone Passport” in Dubai – an initiative that may transform the free-zone landscape. The concept is simple but significant. Historically, a company licensed in one Dubai free zone could operate only in that zone. Want to expand operations to another zone? You’d need a separate license, separate establishment costs, separate compliance obligations. The One Free Zone Passport eliminates this friction. A company licensed in any Dubai free zone can now operate in multiple Dubai free zones with a single license, dramatically reducing administrative burden and costs.

A month earlier, Dubai issued Resolution No. 11 of 2025, addressing another long-standing limitation: free-zone companies can now establish mainland branches, subject to appropriate permits from the Department of Economy and Tourism. For years, free-zone entities wanting mainland market access faced a binary choice: appoint a local distributor – and sacrifice margin – or establish a separate mainland entity – and duplicate costs. Now a hybrid model is possible: maintain a free-zone company for international operations and favorable tax treatment, but branch into mainland for local market access.

These reforms reflect Dubai’s recognition that the Emirates’ business environment had perhaps become too fragmented, with too many jurisdictions, too many authorities, too many compliance burdens. Simplification, even at the margins, makes the entire ecosystem more attractive. Whether Abu Dhabi and the Northern Emirates will follow suit remains to be seen.

 

For Whom Does a UAE Company Make Sense?

The Emirates remain attractive for specific business profiles. Who should consider an Emirates structure?

✓ International Trading Company

• Import/re-export of goods
• Distribution in MENA and Asian region
• Benefits: zero VAT in designated zones, port access

✓ Technology/Service Enterprise

• Global clients, not local
• Remote or international team
• Benefits: QFZP 0%, Dubai Internet City/Silicon Oasis

✓ Financial/Investment Firm

• Asset management
• Trading, advisory
• Benefits: DIFC common law, financial regulations

✓ Holding Company for International Group

• Coordination of regional operations
• Centralization of IP, treasury
• Benefits: zero withholding tax on dividends (QFZP)

✓ Entrepreneur Planning Relocation

• Resident visa through company
• No personal income tax (still)
• Quality of life, infrastructure

 

For Whom Is the UAE a Bad Idea?

✗ Primary Market Is the UAE

• You’ll need a distributor = lose margin
• Or mainland = pay 9%

✗ You Don’t Have Economic Substance

• Shell company won’t qualify as QFZP
• You’ll pay 9% + compliance costs

✗ You Lack Resources for Compliance

• Audits, transfer pricing, reporting
• Professional service costs

✗ You’re Looking for a “Quick” Solution

• Proper setup requires time and planning
• Mistakes can be very costly

 

The Structuring Process: From Analysis to Implementation

 

Proper structuring of an enterprise in the UAE requires a methodical approach that considers the specifics of the planned activity.

The starting point is analysis of the business model: nature of activity, target markets (local vs. international), contractor structure, planned scale of operations. These elements determine the optimal choice between mainland and free zone, as well as the specific location.

Next comes assessment of substance requirements: how many people will actually work in the UAE, what office space is needed, what the financial flows will be. This is not a paper exercise – economic-substance requirements are verified.

For group structures, transfer-pricing analysis is necessary at the design stage. Subsequent adjustment of transfer policy is a significantly more costly and risky undertaking.

The choice of specific free zone should consider not only costs but also the zone’s specialization, infrastructure quality, availability of supporting services, and licensing restrictions.

 

How to Properly Plan the Structure?

 

Six Steps to Success in the UAE

Step 1: Define the Business Model

• Where are the clients? (UAE vs. international)
• What type of activity? (trade, services, manufacturing)
• Where will employees be?
• Where will assets be?

Step 2: Choose the Emirate and Type of Jurisdiction

• Mainland vs. free zone
• Which emirate? (cost vs. prestige vs. specialization)
• Which specific zone? (license for your activity?)

Step 3: Plan Economic Substance

• How many people will you employ locally?
• What office will you lease? (area, location)
• What will operating expenses be?
• Do you meet the QFZP test?

Step 4: Build Ownership Structure

• Direct ownership vs. holding
• UAE structure vs. international structure
• Succession planning and exit strategy

Step 5: Design Transfer-Pricing Policy

• What transactions between related parties?
• How to establish market prices?
• What documentation will be needed?

Step 6: Plan Compliance from Day 1

• Accounting system compliant with IFRS
• Audit preparation
• Compliance calendar (reporting, renewals)

 

Documentation Requirements and Compliance

Contemporary UAE requires comprehensive documentation and ongoing regulatory compliance. Key areas include:

Economic-substance documentation – lease agreements, employment contracts, evidence of operating expenses.

Transfer-pricing documentation for transactions between related parties – comparability analyses, functional analyses, pricing-methodology documentation.

Audited financial statements according to IFRS.

VAT documentation for transactions in designated zones – customs declarations, movement certificates, export evidence.

Omission of any of these elements can result in loss of tax benefits, retroactive assessments, or penalties.

 

Most Common Pitfalls When Establishing a Company in Dubai

 

What to Avoid When Structuring in the UAE

❌ Pitfall 1: “Cheapest Free Zone”

• Choosing based on price alone
• Ignoring zone specialization
• Problems with license for proper activity

❌ Pitfall 2: “Business-Card Company”

• Lack of real substance
• Flexi-desk and virtual office
• Loss of QFZP in audit

❌ Pitfall 3: “I Don’t Need an Advisor”

• Independently filling out forms
• Incorrect ownership structure
• No transfer-pricing plan from the start

❌ Pitfall 4: “I’ll Handle Documentation Later”

• Lack of economic-substance documentation
• Lack of market analyses for transfer pricing
• Retroactive fixing = impossible or very costly

❌ Pitfall 5: “One Company Is Enough”

• Mixing qualifying and non-qualifying activity
• Exceeding the 5% non-qualifying income limit
• Loss of entire QFZP status

❌ Pitfall 6: “Mainland? I Don’t Need It”

• Planning local sales through distribution
• Discovering that clients require local entity
• Late mainland establishment = delays and lost contracts

 

The 2025 Perspective

Has the Tax Changed Everything?

For potential entrants, the message is clear: the Emirates offer extraordinary opportunities, but only for those prepared to engage with complexity. This caveat applies not merely to the UAE’s internal tax architecture, but to the broader international landscape in which any Emirates structure now operates. The era of comfortable opacity has conclusively ended—not just for traditional offshore havens, but for every jurisdiction seeking to attract international business. The transformation began with Tax Information Exchange Agreements (TIEA), accelerated through the Automatic Exchange of Information (AEOI), and solidified with various other mechanisms of international tax cooperation. These developments, which I examine in my article Nowhere to Hide: The Death of Financial Secrecy, have fundamentally rewritten the rules governing cross-border structures everywhere, from Limassol to Dubai.

Success in this transparent world requires careful planning, proper structuring, ongoing compliance, and, almost certainly, professional advice. The jurisdiction rewards those who do their homework and punishes those who assume that simply being in the UAE automatically confers tax benefits. What was once achievable through strategic opacity must now be accomplished through strategic substance—real operations, genuine economic activity, and meticulous documentation.

The Emirates’ experiment with introducing tax while maintaining competitiveness continues to unfold against this backdrop of global transparency. Other Gulf states—Saudi Arabia, Qatar, Oman—are watching carefully, weighing whether to follow the UAE’s path or maintain tax-free status. For businesses, the proliferation of options is both opportunity and challenge: more choices mean more required analysis, more trade-offs to evaluate, more ways to do it right—and more ways to do it wrong.

 

How We Can Help

Our specialty is strategic structuring – designing a solution that works for your specific business model, not selling a ready-made product.

Skarbiec Law Firm collaborates with leading law firms, tax advisors, and corporate service providers in the UAE. Our strategic advisory encompasses analysis of optimal structure considering activity specifics, choice of emirate and legal form, preparation of qualification documentation for QFZP status, design of transfer-pricing policy, and ongoing advisory regarding regulatory compliance.

We offer comprehensive feasibility assessment of the project before undertaking commitments, allowing for an informed investment decision based on reliable analysis, not marketing assumptions.

Phase 1: Strategic Analysis

Phase 2: Structure Design

Phase 3: Implementation (with local partners)

Phase 4: Compliance Documentation

Phase 5: Ongoing Support (optional)

 

For Whom Are We the Right Partner?

 

We don’t work with everyone.

We’re the right choice if:

✓ Your business has real substance

• Real clients, real revenue
• Willingness to employ local team
• Long-term plans, not quick flip

✓ You understand trade-offs

• Lower tax rate ≠ zero compliance
• You accept costs of professional setup
• You know proper structure requires time

✓ You value expertise over “cheapest offer”

• You seek strategic advisor, not executor
• You understand value of proper planning
• Willingness to invest in comprehensive support

✓ You have international perspective

• Group with entities in multiple jurisdictions
• Complex transaction flows
• You need coherent tax structure globally

We are NOT a good choice if:

✗ You’re looking for “cheapest company in Dubai” ✗ You plan a business-card company without real operations ✗ You want to “handle” everything in 2 weeks without proper due diligence ✗ You’re not ready for costs of economic substance and compliance

 

 

About Us

Skarbiec Law Firm offers comprehensive advisory regarding business structuring in the UAE, collaborating with leading law firms, tax advisors, and corporate service providers throughout the Emirates. We help international companies navigate the complexity of emirate selection, mainland versus free-zone decisions, QFZP qualification, and ongoing compliance, ensuring optimal structure while maintaining full regulatory compliance.

Legal Notice: This material is informational in nature and does not constitute legal or tax advice. Regulations in the UAE are subject to frequent changes. Every structuring decision requires individual analysis considering current legal status and the specifics of your business. Information about costs and procedures is indicative and may vary depending on emirate, free zone, and nature of activity.

Last Updated: October, 2025