In the United Arab Emirates (UAE), the legal form LLC is known as the primary alternative among corporations. Indeed, holding structures are also possible in the UAE. In addition, such entrepreneurial constructs can also establish organs. An organization in the UAE, and consequently also in Dubai, is subject to completely different rules than organizations in Germany. For example, when establishing an organisation in Dubai, special requirements are placed on the participation relationships and their owners. Also in accounting and group taxation different regulations apply than in Germany.

1st Organization in Dubai – Introduction

Dubai, the most prominent city in the UAE, is a hotspot for entrepreneurs from all over the world (i.e. influencers). This is due to many good reasons. The fact that no taxes have been paid in the UAE so far is certainly a central point. Meanwhile, the UAE has introduced a corporate tax. Nevertheless, this location does not see any reduction in its attractiveness as a business location. The influx of entrepreneurs from abroad continues, especially from Germany. Apparently, the low or even missing taxes in Dubai are only a nice bonus for setting up companies from abroad. In fact, the forward-looking and entrepreneurially vaccinated community in particular, with its innovative appeal, plays a much more important role in the decision of entrepreneurs to move to Dubai. But the increasing contrast with the economic environment in the home countries, which seems to hinder rather than promote entrepreneurship, also contributes to the argument.

People who want to start and run a business in Dubai will find ideal legal framework conditions. Even the most popular legal form for most entrepreneurs, the Dubai LLC, is a showcase of freedom. Above all, the limitation of liability is part of this, because it optimally protects private assets. But it is also so flexible that it can generate even more advantages. Therefore, in this article we examine how an organization in Dubai is founded and taxed with an LLC.

What are the advantages of organizing

Before we go into detail, for the sake of completeness, we describe what an organ body is and what peculiarities it unites.

An organization is an association of two or more companies. This merger focuses mainly on tax aspects and can be both income tax and sales tax. In the present article, as in most cases with German organizations, the income tax purpose is usually in the foreground. The essential feature of all bodies is that the taxation of affiliated companies should be carried out jointly. Although it is indeed the case in Germany that at the lowest level, the profit determination of the companies combined in the organization is carried out separately, in the overall view the offsetting of profits and losses of all companies leads to uniform taxation. The parent company in Germany is referred to as organ carrier and its subsidiaries as organ companies. Incidentally, a prerequisite for the tax relevance of a German body is the conclusion of a profit and loss transfer agreement between body owners and organ companies. So let’s see if all this applies to an organization in Dubai.

3rd Organising Regulations in Dubai

In fact, in Dubai and elsewhere in the UAE, there are completely different regulations regarding an organization than in German tax law. Three conditions must be highlighted.

3.1. Minimum participation of the organ carrier in organ companies

Firstly, each organ company – for easier comprehensibility we use the German names for the technical terms there – must be directly or indirectly owned by the organ carrier for at least 95% (Article 40 Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses). The same applies to the voting rights of the institution in relation to its organ companies. But this quota also applies to the allocation of profits from the organ companies. All three conditions must be met.

3.2. Corresponding financial year for organ carrier and organ company

Secondly, organ carriers and their organ companies must use the same financial year as the basis of their accounts. This can be a hurdle at first insofar as, before the introduction of corporate tax, the financial year was often accepted for purely practical reasons at the start of business activity, so that financial years deviating from the calendar year were quite common. If the organ carrier and the organ company have different financial years (because they were founded in different months, for example), the organ carrier can submit a request to the competent tax authority for use of a new financial year that is the same for the organ.

3.3. Uniform accounting of the Dubai body

Third, organizations must prepare their balance sheets according to the same standards for all their affiliates. This simplifies the comparability of the balance sheet data. In addition, in Dubai, instead of a separate accounting of the individual companies, a uniform one is allowed by the organ carrier. This can facilitate administration.

4. Other special features at an organization in Dubai

Logically, organizations in the UAE can only be used as a corporate structure by tax entities that are subject to tax liability there. But this also means that entities that are either organ carriers or organ companies in one of the free trade zones in Dubai cannot become a member of an organ body. Thus, bodies in the UAE are limited to the so-called mainland, i.e. the territory in which the UAE has full tax jurisdiction. In addition, both organ carriers and organ companies must be legal persons whose registered office and management are exclusively located in Germany and are also taxable there.

Organ companies and organ carriers can continue to carry out business transactions within their organs. In principle, they remain tax-free. This is true only because profits and losses within an organization are offset against each other anyway. Nevertheless, the so-called arm’s length principle, i.e. the proportionality principle, also applies here. The transfer prices applied to transactions within an organisation must remain comparable to those applied to third parties. On the other hand, when an entity transfers an asset to another entity within an entity, it does so while maintaining the carrying amount. This applies even if there are hidden reserves in the economic asset. These are therefore only revealed when the asset is sold and the acquirer is not a member of the organization. This ensures uniform tax treatment for all companies affiliated to an organisation.

But it is also interesting that the organ carrier of an organization is just as solely responsible for the preparation of the books of all affiliated companies as for the submission of the tax return. The institution bears sole responsibility for paying the taxes due.

5th Conclusion on the Organization in Dubai

In fact, the importance of group taxation in the UAE has only recently emerged with the introduction of corporate tax. After all, there was no reason to think about group taxation of bodies before. Now, however, the consideration of whether an organization could be useful for affiliated companies has come to the fore. As is so often the case when taxes are introduced or tightened, tax design always plays an important role. That is why we are following this issue from Germany with great interest. Finally, we want to provide our clients who flirt with moving to Dubai in order to become entrepreneurially active there with the most comprehensive advice possible in advance. So call us now if you are also heading for this goal. It may still be far behind the horizon, but early information and planning is the basis of all successful entrepreneurial activities.