A company migration (also company “re-domiciliation”) is the process in which a company transfers its (tax) domicile from one jurisdiction to another. Hence the company changes the jurisdiction while maintaining the same legal identity. Subject to compliance with the corresponding legal requirements in both jurisdictions, the company is removed from the register in the jurisdiction of original incorporation and continues its legal existence as a company registered in the destination jurisdiction.
What are the Benefits of a Company Migration?
The (legal) continuation enables the company to maintain all its history and track record while taking advantage of the benefits of the new/destination jurisdiction – retaining existing relationships with clients and suppliers (e.g. existing contracts) and banking relationships.
Why entertain the Idea of a Company Migration?
A corporate migration may be considered for a variety of reasons:
- Taking advantage of a more favourable tax regime;
- Transferring an offshore business onshore;
- Fulfilling Economic Substance requirements;
- Proximity to clients and/or new markets.
Why migrate a Company to the United Arab Emirates?
The United Arab Emirates (UAE) have successfully established and positioned themselves as a premium and leading hub in the Middle East, Africa and South Asia (MEASA) region, offering a variety of advantages such as:
- Zero tax regime;
- Extensive network of tax treaties with over 80 countries and more currently being ratified;
- No exchange control restrictions and possibility of unrestricted repatriation of income/profits and capital;
- Recognized financial hub (Dubai International Finance Centre ranking as 8th Best Global Financial Centre and leading Financial Centre in the MEASA Region, Global Financial Centres Index (GFCI) 2019), ADGM leading financial centre in Abu Dhabi;
- Presence of internationally recognized financial, legal and tax services providers and regional hub of multinationals;
- World-class infrastructure facilities and connectivity (106 airlines operating more than 280 international connections from UAE airports in 2019, IATA Report on the Importance of Air Transport to the United Arab Emirates);
- 29th largest economy in the world and no. 2 in the Middle East and North Africa (World Bank Index 2018);
- High quality of life (the UAE offering the best quality of life in the Middle East, Mercer's Quality of Living listing 2019);
- Safe and secure family environment with one of the lowest crime rates in the world; and
- Political stability and liberal business environment (UAE ranking 23rd among 156 countries, Index of Economic Freedom (IEF) 2019).
The Legal Framework for Company Migration within and to the United Arab Emirates?
The first UAE free zone opened in the 1980s, setting the framework for the many that followed, and today there are more than 45 free zones across the UAE. Until recently, however only a few free zones such as Dubai International Financial Centre (DIFC), Jebel Ali Free Zone (JAFZA), the Dubai Multi Commodities Centre (DMCC) and Abu Dhabi Global Market (AGDM), have enacted corporate migration regulations, while the regulatory framework applicable in the UAE mainland did not provide for corporate migration from a foreign country to the UAE (mainland).Most of the UAE free zones are “themed”, e.g. Dubai Health Care City, Dubai Internet City, and the activities permitted in the respective free zone are to be in line with the zone’s specific theme.While DIFC and ADGM are financial free zones offering mostly “financial” activities and activities ancillary to those regulated activities, DMCC and JAFZA are both “generalist” free zones, offering a broad and comprehensive list of licensed trading and services activities and therefore do unlock vast possibilities for a company migration within the UAE and from abroad.In 2016, also RAK International Corporate Centre (RAK ICC) and Ras Al Khaimah Economic Zone (RAKEZ) have enacted company migration legislation offering the transfer of company domicile. Therefore, even International Business Companies (offshore) can migrate and become onshore (e.g. in the DMCC or RAKEZ), amongst others, in order to comply with local and international economic substance requirements.
Corporate migration is however not restricted to free zones anymore. Dubai law No (14) of 2015 set up a legal framework for foreign companies to transfer their place of registration to Dubai (mainland). At the request of the company licensed outside the UAE, the competent Dubai Department of Economic Development (DED) may enter the company’s records into the DED’s company register and subsequently issue a business continuation certificate and license for the company. It is expected that some other free zones, currently lacking corporate migration regimes, will follow the lead and adapt their regulations to remain competitive.
The company re-domiciliation framework should be particularly interesting to companies having initially set-up in jurisdictions without substance (in other traditional no or only nominal tax jurisdictions such as British Virgin Islands (BVI), Cayman Islands, Jersey, Guernsey, Mauritius, Bahamas and the Seychelles now forced to comply with new and enhanced international economic substance policies and standards. Swiss Group has a broad experience in all aspects of company migrations within the UAE, across all UAE’s jurisdictions, as well as international transfer of company domiciles.
Economic Substance Rules – the new Normal?
One topic closely associated with the migration of companies is the matter of economic substance. New international standards are forcing existing entities with no or just limited substance, especially those registered in no or only nominal tax jurisdictions, to reconsider their setup in order to comply with the new framework.
In December 2017, the European Union assessed the tax policies of jurisdictions with no or only nominal taxes against the criterion of ‘economic substance’. The criterion stated that a jurisdiction should "not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction". Subsequently a list of ‘non-cooperative jurisdictions for tax purposes’ was published.
In November 2018, the OECD announced a new global standard on Base Erosion and Profit Shifting (“BEPS”) Action 5 for inclusive framework jurisdictions. This standard requests that mobile business income cannot be parked in a zero tax jurisdiction without the core business functions having been undertaken by the same business entity, or in the same location.
In response to these new policies and guidelines, and to also circumvent reputational concerns, no or nominal tax jurisdictions have enacted legislation introducing enhanced economic substance requirements for tax purposes.
These economic substance legislations introduced are broadly similar, as they are based on the guidance and requirements issued by the EU, as well as by the OECD.
In a nutshell, the legislations impose the following three requirements on a resident entity that undertakes relevant activity to demonstrate economic substance:
1. The ‘Directed and Managed’ Test: The entity will need to be directed and managed in the jurisdiction with regards to the relevant activity (e.g. having board meetings with an adequate frequency, quorum of directors physically present at such meetings, meeting minutes kept in the jurisdiction, etc.)
2. The ‘Core Income Generating Activities’ (“CIGA”) Test: The entity will need to demonstrate that the relevant CIGAs have been undertaken in the jurisdiction. The CIGAs vary depending on the relevant activity in question.
3. The ‘Adequacy’ Test’: The entity will need to have an adequate number of qualified employees in the jurisdiction, incur adequate expenditure in the jurisdiction proportionate to the level of activity and have adequate physical presence in the jurisdiction (e.g. office space, facilities, etc.). The Adequacy Test is not designed to be prescriptive, but rather depending on the particular facts and circumstances of the entity and the relevant activity in question.
United Arab Emirates
The United Arab Emirates (UAE) is an Arabian Peninsula nation settled mainly along the Arabian-Gulf.
The country is a federation of 7 emirates. While Abu Dhabi, the country’s capital, is home to Sheikh Zayed Grand Mosque, Dubai is the site of ultramodern Burj Khalifa tower, enormous shopping centres and its well-known extravagant entertainment attractions. The Government is fully committed to maintaining a stable, proactive and pro-business environment. It has created a liberal but soundly based regulatory framework and sponsors a large number of imaginative and growth promoting initiatives.
Dubai is the ideal starting point to develop business in the Middle East, the Asian Subcontinent, East Africa, the eastern part of the Mediterranean, the previous Soviet Republics as well as Central Asia. Sharjah, Ajman, Fujairah, Umm Al Quwain and Ras Al Khaimah are the other Emirates of the UAE.
Through our sister company in Abu Dhabi, Swiss Group Legal Ltd, we provide fiduciary and tax planning services (amongst others, regarding the double tax treaties between various countries and the UAE) and estate planning including the registration of non-Muslim Wills, DIFC Wills, Dubai Court Will and Abu Dhabi Wills. In addition, we give legal advice on corporate and general contracts, as well as real estate matters.
We are on hand to help you to get a clear understanding on these new substance requirements possibly also applying to your company. Ensuring that your company complies with all administrative and statutory requirements can cumbersome. Outsourcing this compliance function to Swiss Group enables you to focus on your operations in order to grow your business.