Myths about offshore company formation in the UAE

Myths about offshore company formation in the UAE

Myths about offshore company formation in the UAE

If you have gone through our blog, chances are that you are already aware of “offshore business in UAE”. It is because UAE presents an ideal climate for offshore company formation. However, what we have observed lately is that the term “offshore business” is frequently appearing on newspapers, television, and internet, during business meetings and conferences but more often than not, there is a negative image associated with it.

Especially after the panama papers incident in 2015, many people assume that offshore entities are used by shady business tycoons to disguise illicit money. This is not true in UAE. The UAE government takes strict measures to ensure that offshore companies are setup in UAE in accordance with rules setup by respective offshore authorities.

A “Financial Action Task force” has been formed by UAE government to combat the issue. The task force is directed by Federal National Council and they deal with money laundering and terror financing. Their mission is to create a clean and uncorrupt economic milieu and they have set huge penalties and long jail terms for any wrong doing in this regard.

Here are 5 notorious myths dispelled by Business Setup Consultants Dubai.

1. Offshore Companies offer Tax Evasion: FALSE

The truth is that offshore company formation in UAE offers tax avoidance. And there is a difference between tax evasion and tax avoidance. Tax evasion is an unlawful act done to avoid tax payment. Whereas tax avoidance is a planning made to reduce the tax burden without infringement of the legislature. There is no doubt that starting an offshore company in UAE would be tax efficient.

2. Offshore business is illegal and involves high risk factors: FALSE

The truth is that offshore business in UAE is a legal and highly regulated industry governed by an official authority in every offshore jurisdiction. Offshore company by definition is an entity that does not conduct business activity in the country it is formed. Many multinational corporations own offshore subsidiaries in UAE and book profits overseas to legally lower the tax and retain more funds for re-investments.

Offshore authorities in UAE guide and regulate offshore companies within their jurisdiction and ensure legality, privacy and security benefit at all times.

3. Offshore company formation is a costly and time consuming process: FALSE

The truth is that incorporation of an offshore company in UAE is one of the swiftest ways to start a UAE company. Offshore companies are cost-efficient and offer affordable and convenient way to start business in UAE. Furthermore, offshore bank account can be opened by anyone and the maximum limit is just few hundred dollars.

4. Offshore Companies Are Not Guided By Law: FALSE

Offshore companies in UAE provide confidentiality, privacy of ownership and secrecy of transactions. But that does not mean that they are not governed or are absent from law. With the aim to boost foreign investment, UAE government has provided leverage to international entrepreneurs looking to invest in offshore jurisdiction of UAE such as Jebel Ali offshore, RAK Offshore and so on. These jurisdictions have their own authority with independent directive laws to ensure that each company has smooth and upfront dealings.

5. Tax reduction is the only benefit of offshore company formation: FALSE

It is true that tax avoidance is one major benefit of offshore business since most offshore jurisdictions in UAE offer no income tax, capital gain tax, dividends tax or withholding tax. However, there are a numerous other advantages too.

First, setting up an offshore company is a good way to diversify your business, minimize risk and protect your assets. An offshore entity is more often used as a holding company for intellectual property or investments.

Secondly setting up and maintaining an offshore company in UAE is cheaper than other offshore jurisdictions.

Lastly, an offshore company makes it easier to conduct business. Some countries like Indonesia and Vietnam have placed very tight foreign exchange controls. So business owners from these countries might want to incorporate their company in UAE to facilitate their global trade.

If you are looking to setup offshore company in UAE, check out our company formation services at Business Consultants Dubai or email your query at info@businessconsultantsdubai.com.

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