Dubai Accountant's Business Frontline: "If I'm a resident of Dubai, do I not have to pay tax on a company in a tax haven?"

People who have moved to Dubai often ask, "Since this country doesn't have income tax, if I live in Dubai and incorporate in a tax haven outside the UAE, won't I be tax-free?" However, it's important to note that foreign corporations managed from within the UAE may be subject to tax in the UAE. In tax terms, there is a concept called POEM (Place of Effective Management), which refers to the "place where actual management and control is exercised." For example, even if a corporation is nominally incorporated in the Cayman Islands or BVI, if a Dubai resident makes actual management and strategic decisions in Dubai, the corporation's POEM is likely to be determined to be in Dubai.

If the POEM is located in Dubai, the foreign corporation will be treated as a "Dubai taxable person" and its worldwide income will be subject to tax in the UAE (Article 11, Paragraph 3, b) of the UAE Corporate Tax Law. In other words, even in countries that do not have a tax haven tax system like the UAE, corporate tax (9%) may be levied based on the POEM.

To avoid tax risks under POEM, it is necessary to take appropriate tax measures in advance, such as the location of important decisions, the keeping of accounting books, etc. While cross-border tax planning can be very effective, it is important to be well prepared in advance.

Shingo Okamoto
CPA at the Japan Desk of Alwasiq Management Consultants. After working for five years at a major audit firm (EY), he became independent and established a tax firm in Minato-ku, Tokyo. He currently provides accounting and tax services to Japanese companies in Dubai.
shingo@alwasiq.net

Alwasiq Management consultants
An accounting firm based in Dubai's Business Bay, offering tax advisory services to over 100 Japanese companies through its Japan Desk.
https://alwasiq.net/jp/