Do Offshore Companies Need to Register for Corporate Tax in the UAE? 

The UAE has long been recognized as a global business hub, attracting entrepreneurs and corporations with its tax-friendly policies and world-class infrastructure. Offshore companies, in particular, have benefited from the country’s business-friendly environment, enjoying zero corporate tax and minimal regulatory requirements. However, with the introduction of corporate tax in the UAE from June 1, 2023, business owners are now questioning whether offshore companies fall under the new tax regulations.

In this blog, we will explore whether offshore companies in the UAE need to register for corporate tax, who is exempt, and what compliance steps business owners need to take.

What is Corporate Tax in the UAE?

Corporate tax is a 9% tax on business profits exceeding AED 375,000. The UAE government introduced this tax to align with international taxation standards, prevent profit shifting, and boost economic sustainability.

Key Features of the UAE Corporate Tax:

• 0% Tax Rate for taxable profits up to AED 375,000.

• 9% Tax Rate for profits exceeding AED 375,000.

• Exemptions for certain entities such as government bodies, charities, and regulated investment funds.

• Free Zone Companies can enjoy tax benefits if they qualify as Qualifying Free Zone Persons (QFZP).

Offshore companies have different legal and operational structures compared to mainland or free zone entities, which makes their tax status a crucial topic of discussion.

What is an Offshore Company in the UAE?

An offshore company in the UAE is a non-resident entity that operates outside the UAE while being legally incorporated within the country. These companies are primarily used for international trade, asset protection, tax optimization, and holding investments.

Key Characteristics of Offshore Companies:

• No physical office requirement in the UAE.

• Cannot conduct business within the UAE but can operate internationally.

• No VAT or customs duties since they do not trade locally.

• Limited regulatory compliance compared to free zone and mainland companies.

• No UAE residence visas are issued under offshore licenses.

The UAE offers three main offshore jurisdictions:

1. Jebel Ali Free Zone Authority (JAFZA Offshore) – Ideal for international businesses and holding companies.

1. Ras Al Khaimah International Corporate Centre (RAK ICC) – Popular for wealth management and asset protection.

1. Ajman Offshore – A cost-effective option for international business activities.

Since offshore companies are primarily designed for international operations, their tax obligations under the new corporate tax regime differ from mainland and free zone entities.

Do Offshore Companies Need to Register for Corporate Tax?

• Offshore Companies Are Not Considered Taxable Entities

The UAE corporate tax law only applies to businesses operating in the UAE. Since offshore companies are structured as non-resident entities and are not permitted to conduct business within the UAE, they do not fall under corporate tax regulations.

No corporate tax liability for offshore companies that do not generate income from the UAE.

• Offshore Companies with UAE-Sourced Income May Be Taxable

If an offshore company derives income from the UAE, it may be subject to corporate tax. UAE-sourced income refers to:

• Revenue from contracts performed in the UAE.

• Business dealings with mainland clients.

• Investments or real estate income in the UAE.

If an offshore company engages in any UAE-based commercial activities, it may be required to register for corporate tax and comply with reporting requirements.

Corporate tax applies if an offshore company has economic ties to the UAE.

• Offshore Companies Must Comply with Transfer Pricing Rules

The UAE corporate tax regime includes transfer pricing regulations, which apply to offshore companies that engage in transactions with related entities in the UAE.

• If an offshore company is linked to a mainland or free zone entity, it must maintain proper documentation for inter-company transactions.

• The UAE follows OECD Transfer Pricing Guidelines, ensuring transactions are conducted at arm’s length.

Even if an offshore company is not directly taxable, it may still need to comply with transfer pricing rules.

• Offshore Companies May Need to File Exemption Applications

Although offshore companies are not automatically subject to corporate tax, some may be required to register and apply for an exemption to confirm their tax-free status.

• Exemption applications may be necessary for offshore firms engaging in international trade with UAE entities.

• The Federal Tax Authority (FTA) may request offshore companies to provide financial reports proving that they do not conduct taxable activities in the UAE.

It is recommended that offshore businesses consult with tax professionals to ensure compliance with FTA guidelines.

Tax Compliance Steps for Offshore Companies in the UAE

Even though offshore companies are generally exempt from corporate tax, they must still ensure compliance with UAE business regulations. Here’s what business owners should do:

• Determine Tax Residency Status

• Offshore companies should confirm that they are classified as non-resident entities to avoid unexpected tax liabilities.

• If an offshore company operates in multiple countries, it must ensure compliance with international tax laws such as the OECD’s Economic Substance Regulations (ESR).

• Maintain Proper Accounting Records

• Offshore companies should keep financial records demonstrating that they do not generate taxable income from the UAE.

• Some offshore jurisdictions require annual audits or financial reporting to maintain transparency.

• Apply for a Corporate Tax Exemption (If Needed)

• If the FTA requests clarification on an offshore company’s tax status, it may be required to register and apply for an exemption.

• This ensures the company is officially recognized as a non-taxable entity under UAE law.

• Comply with Economic Substance Regulations (ESR)

• Offshore companies involved in holding companies, intellectual property, or investment activities must comply with ESR regulations.

• If an offshore company fails the economic substance test, it may be required to register for corporate tax.

ESR compliance is crucial for offshore firms engaging in passive income activities.

Do Offshore Companies Need to Pay Corporate Tax in the UAE?

In most cases, offshore companies in the UAE do not need to register for or pay corporate tax, as long as they:

Do not conduct business within the UAE.
Do not generate UAE-sourced income.
Comply with Economic Substance Regulations (ESR) and Transfer Pricing Rules.

However, if an offshore company has business activities in the UAE, it may need to register for corporate tax, file exemption applications, or maintain transfer pricing documentation.

To ensure full compliance with UAE tax regulations, offshore company owners should seek professional tax advisory services.

How Raes Associates Can Help

With our expertise in UAE corporate tax laws and offshore business regulations, we ensure that your company remains compliant while maximizing tax efficiency.

Contact Raes Associates today for a free consultation on offshore company tax compliance in the UAE.