Company Formation Costs
Company formation costs are any expenses that a business incurs to set up its operations. These can range from paying for insurance or renting office space to buying equipment and online subscriptions, such as Zoom, Figma, or Adobe. In some countries, such as the United States, these costs can be deductible, while in others, such as the UAE, they are not.
Depending on the type of company formation in Dubai and its location, there may be other fees to consider. For example, some emirates require companies to pay for the right to conduct business in their territory. These requirements can also include obtaining permission from the Department of Economic Development or other government entities governing specific businesses. Additionally, some emirates require that companies have a physical address for their offices and warehouses, so the company can file required documents with the governing authority.
If a business is not registered in the UAE, it must obtain an industrial license from the corresponding emirate. This step typically requires an application form, a detailed business plan and a minimum of two shareholders. The emirate will review the application to ensure that it meets all requirements before issuing the license. Depending on the emirate, it can take up to a month to get the initial approval.
Is Company Formation Costs Tax Deductible in Dubai?
In addition, a company must have a legal name and registered office, which must comply with the country’s naming conventions. Once the name is approved, it will need to be verified with the Department of Economic Development (DED) and the Registrar of Companies in the relevant emirate.
The DED will then assign a license number and issue an official document declaring the company’s status. Once the company is registered, it must submit a Memorandum of Association to DED with its details, including its objectives and shareholders. The document will also detail the company’s structure, such as its ownership and capital.
If the company is a consolidated group, it must provide the DED with the information of all members and shareholders of the consolidated group. It must also provide details of all the subsidiaries and affiliates within the group, as well as any assets held by the consolidated group. This is to ensure that the total income of the consolidated group does not exceed the limit on net interest expense deductibility.
Interest is an essential cost for any business, but the UAE corporate tax (CT) regime may restrict its deductions. Specifically, the CT law limits interest deductions for businesses that have not met certain criteria. This is to prevent the exploitation of different tax treatments, such as equity and debt, and is in line with the OECD’s Base Erosion and Profit Shifting Project Action 4.
In order to avoid this limitation, it is important to know which expenses are eligible for a deduction. To do so, taxable persons should seek the advice of accredited tax agents. The accounting procedure used to determine taxable income will also avert the possibility of illegal activities and inflated deductions.
