Cyprus or Dubai: nine percent, but not for free

Dubai: tax freedom ended in 2023

This is the point at which most presentations are out of date, and it concerns Dubai, not Cyprus: nothing changed in Cyprus in 2023.

For financial years beginning on or after 1 June 2023 the UAE levy corporate tax. The basis is Federal Decree-Law No. 47 of 2022.

There is still no income tax on salaries and investment income, and nothing arises on distributions. The total burden on distributed profit is therefore 9 % above the limit, against 17.25 % in Cyprus with non-dom status.

So on the pure rate Dubai wins clearly, and below around €94,000 of profit it wins outright.

The zero in a freezone hangs on conditions

Here it gets complicated, and here lies the real risk.

The 0 % rate in a freezone does not apply to every company there but only to a qualifying person and only to qualifying income. What is required:

• an actual and adequate presence in the UAE
• compliance with a de minimis limit for non-qualifying income, according to one source the lower of 5 % of total revenue and AED 5 million
• no excluded activities

What Cyprus offers in exchange

Three things a UAE company does not have.

EU membership. Intra-Community supplies, reverse charge, the OSS scheme and the Parent-Subsidiary Directive apply to a Cyprus company. Anyone with mostly EU business customers works under different rules with a company outside the EU and gets queries more often. See the guide to reverse charge.

The treaty network. Cyprus has an extensive network of double tax treaties, grown over decades.

The IP box. Profits from software and patents are 80 % exempt, leaving an effective 3 %. That is less than the nine percent of the UAE. See the guide to the IP box.

Both require substance

A point on which the two countries are more alike than the marketing suggests: an address is not enough in either of them.

Cyprus ties tax residency to management and control actually being exercised there, see the guide to tax residency and the guide to substance and shell companies.

The UAE require an actual and adequate presence for freezone status.

Anyone genuinely present in neither country has a viable setup in neither, only a construction that is vulnerable to the first audit.

Costs: licence and rent sit higher in Dubai

On the rate Dubai wins. On costs it loses, and that is almost always left out of comparisons.

The company. A freezone licence costs, according to the sources we checked, from around €3,200 a year, and around €3,700 with one visa. In a well-known zone such as DMCC the annual licence is around €5,100 and the first year including registration €6,500 to €8,250. Added to that are an establishment card at around €750 and €750 to €1,125 per residence visa.

The housing. Here lies the real difference:

In Dubai the annual rent is moreover usually payable in advance, often in one or a few cheques. That is not a higher sum but a liquidity requirement that does not exist in Cyprus.

First year calculated: Dubai sits €7,000 to €18,500 higher

Company and housing together, one year, one person:

The Cyprus figures come from the guide to the cost of a Cyprus company, the Dubai ones from the sources named below.

Break-even: from €41,000 of profit Dubai carries its extra cost

Now against the tax. In Cyprus distributed profit with non-dom status carries 17.25 %, in Dubai below AED 375,000 zero.

In the expensive variant the break-even moves to around €107,000. There, at €94,000 of profit you pay zero tax and still end the year around €2,200 worse off than in Cyprus.

When which country

Dubai, when profit is above around €41,000, the customers sit mostly outside the EU, and you are prepared to meet the freezone conditions on an ongoing basis. Anyone already living there calculates without the rent and is better off well below that.

Cyprus, when profit is below around €41,000, when the customers sit mostly in the EU, when software or patents carry the profit, or when an EU base counts for other reasons such as residence rights or market access.

What we could not substantiate

• Whether the AED 375,000 limit also applies to non-qualifying income in a freezone. One source says nine percent applies there from the first dirham, another that the normal limit applies there too. That is a considerable difference.
• The duration of the small business relief. The end of 2026 and the end of 2029 are both quoted. The sources contradict each other.
• The conversion of the limit. AED 375,000 is around €94,000, depending on the rate. There is no fixed euro limit.
• The Dubai cost figures. Licences and rents come from consultancy and agency pages, not from official sources. The statements diverge markedly: on renewal of an IFZA licence one source quotes around AED 5,000, another the same amount as in the first year. On rent for a one-bedroom apartment in Dubai Marina the figures range from AED 95,000 to 160,000 a year. We calculate with mid-range values, and the arithmetic shifts with other assumptions.
• The comparability of the apartments. 60 m² in Cyprus against a one-bedroom apartment in Dubai is an approximation, not an equivalence.
• The exchange rate. The calculation uses the rate that also underlies the AED 375,000 to around €94,000 conversion, that is about 3.99 AED to the euro. Any currency movement shifts all the Dubai figures.

For a decision that takes years to unwind, the checking belongs before the step: Cyprus setup from one place.

What we offer for this

Volk Accountant does Cyprus bookkeeping: VAT 4 and VIES, Cyprus rates and deadlines. For an Emirati company it is the wrong tool.

If Cyprus is the choice, the guide to the cost of a Cyprus company sets out what to really expect in the first year, including rent.