business activities and nature of income are not satisfied. Implications from Non-UAE Tax Authorities We would like to highlight 4 often underestimated tax implications from a non-UAE Tax Authorities’ perspective: 1 - Controlled Foreign Company Rules CFC rules are key tax regulations deployed by nations to counter tax evasion via foreign affiliated companies in low-tax jurisdictions, by taxing income earned by the latter in the « home country ». Investors eyeing UAE ventures should carefully consider their home country tax provisions. International agreements can influence the application of CFC rules in specific cases. 2 - Benefits of Double Tax Agreements The good news is that the UAE boasts one of the most extensive networks of DTAs in the world, with 137 DTAs currently in force! DTAs aim to prevent individuals or businesses from being taxed on the same income in both the UAE and their home country. Key recommendations include: - Verifying eligibility for DTA benefits. - Adhering to prescribed methods for eliminating double taxation, in the relevant DTA. - Considering state specific interpretations, based on tax culture or domestic practices. 3 - Climate Change in International Reporting Requirements Individuals with financial connections abroad may encounter reporting obligations, such as the US Foreign Account Tax Compliance Act (FATCA). Notably, the UAE has: - Adhered to the OECD Common Reporting Standards (CRS) since 30 June 2018 for reporting of tax related information. - Implemented Economic Substance Regulations (ESR) through UAE Cabinet Resolution No. 57 of 2020 issued on 10 August 2020 which determines that Onshore and Free Zone entities engaged in specific activities must comply with Economic Substance requirements. Adhering to these global standards is crucial to avoid penalties, ensure transparency, facilitate financial transactions, and establish appropriate corporate structures. 4 - Permanent Establishment (“PE”) Under UAE CT regulations, where a Qualifying Free Zone Person operates outside a Free Zone through a PE in mainland UAE or a foreign country, the profits attributable to such PE are subject to the UAE CT rate of 9%. To prevent double taxation of foreign PE profits, relief from CT is usually available under the UAE’s extensive Double Tax Treaty network and its CT Law. In practice, an in-depth analysis of the governance mechanism and business decision-making process must be performed to efficiently mitigate any PE risks. What is the future for wealth planning and structuring in the UAE? We have both been navigating multiple jurisdictions over the past twenty years and witnessed significant structural shifts in the wealth optimization landscape. The UAE has unmistakably emerged as one of the world’s most dynamic global hub for migrating HNWIs, embracing state-of-the-art wealth practices. A Global Perspective The objective has been to attract HNWIs, offering a tax-efficient environment, global connectivity, business-friendly setups, and a Western luxury lifestyle, coupled with abundant investment opportunities. - The launch of the 10-year Golden Visa scheme in 2019, facilitating long term investment prospects for foreign investors. - Recently notable 2021 regulatory revisions, allowing 100% foreign ownership of non-strategic companies. More specifically, observing 4 Key Drivers: 1 - Private Wealth Management Ecosystem Development The outdated perception of Dubai and the UAE as transient markets, reliant primarily on expertise from traditional hubs like Switzerland, Singapore, or London, is now obsolete. Over the past five years, the advisory network has considerably expanded, with wealth management firms and global financial institutions establishing private banking offices and tailored offerings in Dubai to meet growing client demand. 2 - Enhanced Regulatory and AML/CFT Compliance Frameworks Amidst global capital inflows, the UAE remains vigilant in its commitment to combat money laundering, strengthening regulatory frameworks to align with international standards, emphasizing transparency. WWW.LAWYER-MONTHLY.COM 53 The UAE’s territorial tax system, centered on residency status, governs taxation for individuals, based on key factors like time spent in the UAE and economic ties.
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