This brief explores the dual status of offshore companies, which have dual status under corporate legislation. On the one hand, they are legal entities acting independently. On the other hand, they possess the ‘capacity, rights and privileges of a natural person’:
| Offshore companies in Jebel Ali Free Zone | RAK ICC Business Companies |
| “From the date of incorporation …, the incorporators, together with such other persons who may from time to time become members of the Offshore Company, shall be a body corporate having the name contained in the certificate of incorporation capable forthwith of exercising all the functions of an incorporated company…” (Regulation 8.2) |
“A company is a legal entity in its own right separate from its members and continues in existence until it is dissolved”.
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| “An Offshore Company has the capacity and rights and privileges of a natural person” (Regulation 13.1) | “Subject to these Regulations, a company has the capacity, rights and privileges of a natural person”. |
This has created uncertainty regarding whether these companies should be recognized as natural or legal persons under the Corporate Tax Law. Aditya Khandelwal rightly pointed out that these Regulations may offer offshore companies the opportunity to be subject to UAE Corporate Tax as natural persons. The restrictions on of offshore companies’ activities in the UAE incentivize their use for conducting business outside of the country. If treated as natural persons, these companies could potentially benefit from an ex-emption from Corporate Tax on their foreign business activities.
This uncertainty has been firstly addressed specifically in the Public Clarification CTP001 issued on June 4, 2024. In Section on registration timeline for resident juridical persons, the FTA explained that ‘a juridical person that is a Resident Person shall submit a Tax Registration application for Corporate Tax taking into consideration the date it was incorporated, or otherwise established or recognised under the applicable legislation in the UAE. This includes a Free Zone Person incorporated, established or otherwise registered in a Free Zone. This equally applies to ‘’Offshore Companies’’ that are incorporated, or otherwise established or recognised under the applicable legislation in the UAE’.
Finally, on 18 October 2024, the FTA clarified that ‘companies that are labelled as “offshore companies”, which are incorporated in the UAE are also considered to be juridical persons’.
However, every cloud has a silver lining. Offshore companies now qualify to be certified as the UAE Tax Residents for both domestic and double tax treaty purposes. Previously, the TRC User Guide, dated August 5, 2022, had disallowed this by stating: ‘Offshore companies are not allowed to apply for the service because they are not listed in the Double Taxation Avoidance agreements’.
Additionally, Jebel Ali offshore companies can qualify for the zero percent rate, as the zone has promptly confirmed its Free Zone status for Corporate Tax purposes.
Similarly, business companies in RAK ICC may also potentially zero-rate their profits if their Free Zone status is confirmed for Corporate Tax purposes. RAK ICC appears to be eligible for this. Pursuant Art. 1 of Ras al Khaimah Emiri Decree No. 12/2015, ‘an independent governmental Centre called RAK International Corporate Centre shall be established as a free zone in Ras Al Khaimah …’. Therefore, from a legal standpoint, RAK ICC is established as a free zone. The only remaining obstacle to admitting RAK ICC business companies to the Qualifying Free Zone Person tests is the lack of official recognition of this status from the RAK ICC authority.
Disclaimer
Pursuant to the MoF’s press-release issued on 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.
The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law.
See the full press release here.
You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA. The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have status of the author’s opinion only. Like any human job, it may contain inaccuracy and mistakes that I have tried my best to avoid. If you find any inaccuracies or errors, please let me know so that I can make corrections.
