Moving away from UAE holding company

My current situation:

- I am a perpetual traveler
- My original country of nationality has a strict "days test" for determining tax residency - doesn't have tests like "habitual abode" or "center of life"
- I own a UAE freezone company (which currently acts as my holding company) and US LLC (for Stripe payment processing purposes) plus a couple of Cyprus companies that are subsidiaries of the UAE freezone company
- I have an Emirates ID, rent a house in the UAE, have an Ejari, UAE utility bills, etc.
- But I generally spend no more than 3-4 days every year in the UAE
- Business involves digital info-products / ecommerce through our websites with a majority of customers being in the U.S.
- Annual net operating profits > $2 million
- Significant short-term and long-term capital gains from shares, ETFs, options, etc. in both my personal IB brokerage account and the UAE company's IB brokerage account

Problem:

- UAE's new corporate tax and how to not have to pay it without falling afoul of their General Anti-Avoidance Rules (GAAR).

Initial solution I came up with:

- the UAE company, through a special board resolution, hands over ownership of the websites to me (maybe as a special in-kind dividend to its shareholders)
- I will immediately transfer the ownership of the web sites to the US LLC which then becomes the main holding company and books most of the profits.

My initial thinking was:

- the US LLC wouldn't come under UAE corporate tax laws because I only spend 3-4 days in the UAE every year, so doesn't seem like the US LLC will have a PE in the UAE
- handing over ownership of the websites to me as a special dividend won't fall afoul of GAAR as long as I do it before the beginning of the next financial year since no CT is applicable for this financial year. Maybe I am wrong about this and maybe there's a better way of transferring ownership of the websites - I am not sure.

Anyway, with all this being said, here's my question:

It may be best, contrary to what I had originally planned, to avoid the US LLC owning the websites. Mainly in order to avoid U.S. estate tax rules in case of my sudden death and more importantly, for asset protection purposes (i.e. if someone sues the U.S. LLC, I wouldn't want the LLC to have substantial assets in that case).

With this in mind, I am thinking of incorporating a holding company in a different jurisdiction. The jurisdiction needs to have:

- 0% corporate tax and capital gains tax
- Good banking
- Ability to open a brokerage account with IB

Good to have (but am flexible on these points - I know I have to compromise somewhere):

- No Audit requirements
- No substance requirements
- Annual maintenance costs < $5000

Any ideas on what the best jurisdiction would be in my situation?

Thank you.

CyprusLawyer101 said:

There could be a solution for you but as it has been said, where you spent the remainder of your days is of primary importance.

Thanks for your response. I am a digital nomad and spend no more than 2-3 months in a particular country in a year. And those countries tend to vary every year.

CyprusLawyer101 said:

With reference to recieving the underlying assets from your uae co, you should liquidate it and recieve them as assets distributed to shareholders. It might be better that you first change the shareholder to your intended new company and then do the dissolution.

I actually don't want to liquidate/dissolve the UAE company - I want to keep it going for various reasons. What I'd like to do is to no longer have the UAE company be the owner of our websites and transfer the ownership of the websites (and all the IP associated with the sites) to me personally.

Last edited: Dec 6, 2023

CyprusLawyer101 said:

You coupd go for a spin off and keep the uae co.

Can you elaborate how the spin-off would work exactly? Did you mean that I should just incorporate a new company and have the UAE co transfer ownership of the sites to the new company for no monetary consideration whatsoever?

CyprusLawyer101 said:

Arent you registered as tax resident anywhere?

No - I am not.

CyprusLawyer101 said:

A spin off is a type of corporate restructuring. It normally provides for the creation of a subsidiary from an existing company which then distributes shares of the new entity to its existing shareholders. It sorts of give birth to a new company. Such re-organization if done properly may benefit from exemptiom from taxation which could have otherwise arisen under a straightforward transfer of assets. It can have other regulatory benefits as well especially where a listed company performs the spin off giving birth to a new listed company.

I see - thanks for the clarification. Makes sense. However, do you think a spin-off (as opposed to a transfer of assets) is necessary in this case from an exemption from taxation perspective given that the transfer of assets will happen this financial year and the CT laws for my UAE co only kick in from the next financial year (which in our case starts from April 2024)? So it doesn't seem like the spin-off route would have any benefits over the transfer of assets route as long as it takes place before April 2024?

Or, if it's more of a GAAR thing (i.e. preventing the tax authorities from claiming in the future that the transfer of assets was done to abuse tax rules), then it seems like GAAR might be equally applicable to the spin-off route as well?

CyprusLawyer101 said:

I am not deeply aware of UAE tax rules to be able to form an opinion on that.

OK, thanks. Do you have any thoughts regarding the best jurisdiction for the new spin-off holding company based on the criteria I mentioned in the original post?

aage said:

Since Cypruslawyer operates as a professional in Cyprus, I think his point is that you should look for a solution in Cyprus, for example with an LTD there.

So I guess this involves incorporating a Cyprus non-resident company (in order to have 0% corporate tax) but since a Cyprus non-resident company will have to state where it will be taxed while filing its tax returns, this company will require a director who is a resident of a tax-free country like Bahamas, Cayman, BVI, etc.?