Disadvantage of Dubai LLC? This is not very present online because many only sell the good sides of a certain company structure.
Sometimes
- due to past advantages for Dubai companies or
- due to false information made by service providers in Dubai
In this article, we will touch upon the disadvantages of Dubai LLCs and why many online business owners are actually closing their Dubai LLC and choosing other company jurisdictions to invoice their clients while still living in Dubai.
1 – Disadvantages of LLC in Dubai: Dubai’s 9% corporate tax
In June 2023, a 9% corporate tax in Dubai was introduced by the government.
Before that it was a 0% corporate tax.
This is only for businesses with from a net profit above 102k USD which are most businesses in Dubai – it is very hard to live in Dubai with this amount in particular as a business owner.
This means in particular:
The first 102k USD is not being taxed. Starting from there every dollar is taxed by 9%.
For instance:
Your profit is 150k USD, then that would mean 150k – 102k = 48k USD is the amount taxable in Dubai.
With this corporate tax, Dubai has lost its previous advantage as a tax haven – a reason why many chose Dubai in the first place.
But the UAE authorities claim:
Free zone companies still have the 0% tax rate if they do not do any business with and in the UAE.
This would basically make it similar to Hong Kong with the offshore tax system. The offshore tax system in Hong Kong says that a Hong Kong company with no business in Hong Kong (no clients in Hong Kong, no employees in Hong Kong) can apply for 0% corporate tax.
The reality in the UAE is different to what the government claims.
Nomad Capitalist in this YouTube video (approx. minute 2), who help individuals with offshore companies, talks about a different reality.
They have heard from business owners in Dubai that they had Freezone companies and yet had to pay the 9% tax rate.
This uncertainty makes it very hard for business owners in Dubai to budget correctly.
Further reading:
Read more about the Hong Kong offshore tax exemption and how you can use it while living in Dubai.
We have never failed to grant the 0% offshore tax exemption for a Hong Kong company, including many of our clients who live in Dubai. If you want to see how it can apply to your living situation, book a call with our tax accountant team.
2 – Disadvantage of LLC in Dubai: Dubai’s tax government changing laws
The change in law with the corporate tax from 0% to 9% can be seen as just another change in laws, but it actually came with a lot of distrust for business owners.
UAE’s tax authorities promised a 0% tax rate for lifetime and many foreign business owners feel cheated by the empty promise.
Although many have not been hit due to the exception for the freezone companies, most experts say that it will soon be applied to freezone companies as well.
This is part of the effort by the UAE to have a better standing with Europe and not be treated as a tax heaven.
Recently, many European and American business owners living in Dubai have opted for a Hong Kong Business in order to prevent the 9%-tax rule.
Through a Hong Kong Business, they can have
- 0% corporate tax in Hong Kong (read more about offshore tax exemption in Hong Kong)
- 0% dividend tax in Hong Kong
- 0% dividend tax in Dubai as personal capital gains are not taxed by law
Further reading:
Read more about why Hong Kong is considered a tax heaven while still enjoying high reputation from EU companies and governmental authorities.
3 – Disadvantage of LLC in Dubai: Travelling to Dubai every 6 months
To keep a Dubai company and the Dubai ID for the residency, part of the requirement is to fly into Dubai once every 6 months.
For business owners who live in Dubai, this requirement is not very harmful as they stay there most of the year.
On the other hand, for business owner who chose a Dubai LLC solely for the 0% corporate tax, but actually live somewhere else, this comes with a big hassle.
For these type of business owners depending on where they live, other company jurisdictions such as a US LLC for foreigners or a Hong Kong company can be more beneficial as:
- it is a 0% tax rate
- it does not require you to be on-site (in the US or Hong Kong)
- it is half the costs of a Dubai company (both in setting it up and in maintenance)
So when being a digital nomad or living in South East Asia or Latin America, then a Dubai LLC can bring further obstacles.
Further reading:
Read more about the differences between a US LLC and Hong Kong LLC for digital nomads
4 – Disadvantage of LLC in Dubai: Non-digital Banks
Part of the disadvantages of an LLC in Dubai is also the very non-digital landscape in the banking infrastructure.
Here are some examples:
- Banks require an on-site visit to take you seriously for a business bank (unless you have very good banking connections)
- It requires a lot of paperwork
- it is a very slow process (between 4 and 6 weeks)
- no big digital players (Wise, Airwallex etc.)
As a comparison:
In Hong Kong, it takes a week for the bank to be set up and Wise, Airwallex and other fintech companies are readily available.
Read more:
Read more about how the opening of a Hong Kong business bank account works as a foreign business owner.
5 – Disadvantage of LLC in Dubai: Difficulties with payment gateways
For a Dubai company, you can use the common payment gateways that you know from your home country:
- PayPal
- Stripe
But there can be difficulties along the way such as:
| Difficulty | Reason |
| Frequent account freezes | Especially if selling to EU/US buyers |
| Payout delays or errors | Due to Dubai bank routing issues |
| Weak customer support | Often redirected to global helpdesk (the helpdesk in Dubai often cannot answer questions) |
| Limited integration with some apps | Fewer partners in the UAE |
This is why many of our customers are based out of UAE (Dubai, Abu Dhabi), but have their e-commerce business from a Hong Kong company to enjoy these benefits:
- Global E-commerce: Selling around the globe without any obstacles
- USD Payouts
- Higher trust by EU countries
- faster payout by PayPal
- cleaner PayPal experience (no account freezings)
Further reading:
Read more about how to open a PayPal account for a Hong Kong business.
6 – Disadvantage of LLC in Dubai: No process and systems for bookkeeping and accounting in place
Apart from financial disadvantages of LLCs in Dubai, there is also stress and bureaucracy involved since the start of the corporate tax (see above: disadvantage 1).
Whether you have to pay 9% tax or don’t need to pay taxes, it all adds to your workload for proving it and keeping books.
This is the first time the UAE has introduced a corporate tax.
Therefore, the tax authorities and accountants are not yet aligned on the laws, processes and systems.
This leads to back and forth, miscommunication, and additional work for business owners interrupting the core business (sales, marketing, operations).
7 – Disadvantage of LLC in Dubai: Open bank account for Dubai company
A very intense disadvantage of a LLC in Dubai is that opening a business bank account can be a struggle.
Many service providers who help to open a Freezone company tell otherwise.
But the surprise comes after opening the Dubai company and when they struggle to open a business bank account in Dubai for the Freezone company.
Not to say, that it is impossible and all service providers lie.
There are some reputable service providers and who can make it happen.
But take in mind that the process is not as easy as some make it seem like and it requires documents and often also presence (unless the service provider has very good network).
Also in will certainly take more than a few days – estimate with a few weeks for this.
In comparison:
With a company in Hong Kong you can open a business bank online, within 3 to 5 days and we can tell you before opening a Hong Kong company whether you are eligible for it.
If you want to find out whether you will certainly be able to open a business bank account in Hong Kong, book a call with our legal team.
Further reading:
Read how easy it is to open a business bank account online for Hong Kong companies for non-residents.
8 – Disadvantage of LLC in Dubai: Closing Dubai company
Yet another recent disadvantage of LLCs in Dubai is the bureaucracy involved when closing the company.
While opening a Dubai company is relatively easy, closing one can be a nightmare.
This has led many individuals to rather “sell” their company instead of closing it.
Even Christoph Heuermann from Staatenlos who helps people with offshore companies had difficulties closing his own business in Dubai and publicly announced on Facebook that he sells it for no additional cost.
Generally, many experts on offshore companies, perpetual travelers and digital nomads are recommending against a Dubai company.
If you don’t live there and want to set up a company for 0% tax, then a solution like a Hong Kong company or a US LLC may be a better option.
If you want to live there and can get residency (through investment), you could still open an offshore company in Hong Kont and two hit two birds with one rock:
- Enjoying the lifestyle in Dubai
- Paying 0% tax due to 0% corporate and dividend tax in Hong Kong and 0% dividend tax in Dubai.
If you want to hear more how other business owners in the UAE have made the decision and how their setup works out, book a call with our legal team to go through this use case together.
