Ras Al Khaimah International Company (RAK IC) might be the top-notch option in terms of doing business outside of the UAE. But what are the reasons behind all these statements? Let’s figure out with BBCIncorp!
A quick glance at RAK International Companies
As one of the independent federal Emirates of the United Arab Emirates, RAK is situated on the east of the Persian Gulf, covering approximately 1,700 square kilometers. Even though Dubai takes all the spotlights, RAK has risen to be one of the most requisite business hubs in the region.
It is no myth that RAK is one of the perfect-at-all-aspects countries with regards to the ideal offshore jurisdictions. RAK has gone through some pivotal economic developments and diversification with the main concentration on tourism, industry, trading, commerce, and real estate. This extreme economic progress is likewise stirred by all the business-welcomed policies toward foreign direct investment.
RAK International Company (RAK IC) is a non-resident firm that is fast becoming a famous alternative for foreigners seeking to have an offshore company in the UAE. One of the fundamental reasons behind this popularity is that they want to create an asset protection platform in the UAE in order to do business in a tax-exempt environment.
Advantages of RAK IC
Comes with RAK IC is a set of ideal benefits:
- 100% foreign ownership.
- No tax or low taxes. 0% corporate tax, income tax, withholding tax, and import-export tax. On Jan 1st, 2018, the UAE included a small value-added tax (VAT). In any case, be noticed that US citizens and any individual who is an inhabitant in a nation that taxes global income must report all income to the tax authorities.
- Confidentiality is preserved. The names of the shareholders and directors are kept away from the public.
- Limited liability. Shareholder’s liability is limited to any amount unpaid on a share.
- Various Business Fields. Trading, Services, Advisory and Consulting, Investments, Online Business, and Holding company for global assets.
- No accounting requirements. Only standard corporate accounting practices are required. There is no need to prepare for accounting filing or to appoint an auditor. And also, there is no accessibility of accounts.
- English is the primary language. Even though English isn’t the official language of RAK, all documents related to business activities are in English.
Disadvantages of RAK IC
Like any other offshore entities, International Companies in Ras Al Khaimah also come with several drawbacks.
As an offshore company in RAK, you can not conduct any businesses inside of the UAE. You’re also not allowed to rent local premises as well as employ staff locally.
Moreover, this type of business doesn’t let you attain a resident visa in the UAE. A tax residency certificate also doesn’t come with RAK International Companies.
Possible uses of a RAK IC
It is no exaggeration to say that RAK IC is designed to be used in practice for diverse business purposes. Some of the uses include:
- Holding Shares. RAK IC can be used as a holding company. However, it is fundamental to know that this type of business entity is not entitled to avail of the benefits of any double taxation treaties signed by the UAE. If you want to have such advantage, you will need to register for an onshore company.
- Project Development. At a time where international projects are growing non-stop like this, having a RAK IC as a special purpose vehicle for project internal financing and other related activities is an ideal decision for your business.
- International Trade. If your main business activity is involved with worldwide trading (except the UAE), a RAK IC might be the most effective and advantageous choice.
- International Logistics and Services. Thanks to the fact that there is almost no limit for conducting business activities, this type of business entity is best suited for the international logistics and service sector.
- Patent Holding and Other Intellectual Property. A RAK IC business structure makes it a highly competitive option for holding patents and other intellectual property on its name.
- Open a Bank Account. If private transactions and asset confidentiality are what you’re longing for, then this type of business might be what you need. With an international company in RAK, you’re allowed to open bank account worldwide.
Taxation of RAK ICs
Ras Al Khaimah is a famous destination for businessmen thanks to the fact that it is a “no tax” emirate. This also means that there are no direct corporate income taxes, and no wealth taxes when you run a RAK IC. There is also zero withholding tax when it comes to doing business as a RAK IC. Still, there is 5% of VAT that is applied to all tax-registered businesses.
However, this “no tax” privilege doesn’t apply to the treatment of oil and gas exploration companies and branches of foreign banks. Both of these types of business are subjected to tax.
The initial requirement to set up and annual compliance duty
The incorporation process of an international company in RAK is quite fast. It typically takes two working days to form a RAC IC and the incorporation certificate will be issued shortly after.
Requirements to set up a RAK IC:
- There is no minimum for the capital requirement as per the law if you want to set up a RAK IC
- A confirmation of deposit of the minimum share capital
- An official Bank Certificate confirming of deposit of the minimum share capital
- Minimum of one Shareholder
- Minimum of one Director (be noticed that the powers and duties are to be specified in the memorandum)
- The company name has to be approved by the RAK Free Zone Authority
- The memorandum has to contain the share capital, share value, power of Directors, and object of the company in a UAE Court
- All financial records have to be kept in the office (however, it will be kept confidential)
Another good news is that, with a RAK IC, you don’t have to worry about filing an annual return, tax return, or submitting financial accounts at all.
Economic Substance impact on RAK ICs
The UAE issued Economic Substance Regulations to comply with the UAE’s commitment as a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS). Also, this is an act to respond to the fact that the EU has listed UAE as non-cooperative jurisdictions for tax purposes (also known as the EU blacklist) in a review of the UAE tax framework.
Some fundamental milestones of Economics Substance Regulations:
- On the 30th of April, 2019: Economics Substance Regulations was issued (Cabinet of Ministers Resolution No. 31 of 2019)
- On the 11th of September, 2019: A guidance regarding the Economic Substance Regulations was published (Ministerial Decision No. 215 for the year 2019)
- On the 10th of August, 2020: Replacement to the Regulations was issued by the Cabinet of Ministers Resolution No. 57 of 2020 in consultation with the OECD and the EU
- Also on the 10th of August, 2020: An updated guidance was issued by the Ministerial Decision No. 100 of 2020
A RAK IC has to signify the following three conditions to meet the Economic Substance Test:
- Requisite employees, physical assets, and expenditure in the UAE
- Core Income Generating Activities (CIGAs) are tackled in the UAE
- Directed and managed in the UAE
If the RAK IC outsources all the above activities, it is crucial for the company to signify the appropriate supervision of the outsourced activities.
In accordance with the recent guideline, all RAK ICs have to:
- File a notification within a six-month period by the end of the Financial Year of the Licensee or Exempted Licensee. through the Economic Substance Notification tab. You can find this in RAK ICC’s “Agent Portal”.
Here is a list of information that all RAK IC are required to provide as per the guideline:
- Entity details:
- Present the registered office address, certificate of incorporation/commercial license/trade license/permit number, legal form/company type, financial year/accounting reference period.
- Report period:
- Clarify the beginning and ending date of the relevant financial period.
- Relevant activities:
- Present information in terms of executing a Relevant Activity, earning income from the Relevant Activity during the reporting period, or indicating whether the gross income from each Relevant Activity was fully or partially paid, subject to tax in other jurisdictions outside of the UAE.
- Additional information:
- Verify whether the share capital of the company is owned at least 51% by the UAE Federal Government, the Government of an Emirate or any government of the UAE Federal or an Emirate Government to be exempted from filing the Economic Substance Return; plus, confirm that the company is a tax resident from any jurisdictions outside of the UAE during the reporting period.
- Provide details of a dedicated contact person (a representative of the registered agent, an entity official, or the compliance officer are also adequate)
The Report Deadline is 12 months after the financial year ends. For example, your RAK IC tackles a Relevant Activity with the financial year ends on the 31st of December, 2020; then you must submit the Report by the 31st December, 2021 which is 12 months after the initial financial year ends.
So, what happens if a RAK IC doesn’t comply with this guideline?
A penalty of AED 10,000 to 50,000 to any RAK ICs if they fail to present the compulsory information or intentionally present inaccurate information. If the RAK IC continues its non-compliance, the penalty can be increased from AED 50,000 to 300,000 in the following year. Be noticed that non-compliance might result in potential suspension, revocation, or non-renewal of registration license.
Even with all the reports from the Economic Substance, international companies in RAK are still an ideal choice for going offshore. No (or low) tax jurisdiction with high confidentiality on various business types, what else can investors look for in an offshore company? Should you have any interest in doing business in RAK as an international company, please take a look at our RAK Offshore Company Formation service.