What is KYC?
UAE regulations require us to identify our customers (“Know Your Customer” or KYC) to combat the laundering of illegal money.
What is KYC?
Money laundering can be defined as any operation aimed at hiding the wrongful origin of the proceeds of crime.
KYC is the set of processes that we must implement to ensure a thorough knowledge of our customers.
What are the consequences for the creation of a UAE company with a bank account in Dubai?
For any new natural person client (director and / or partner of a company in the UAE), we always ask for a copy of their passport and a proof of address dated less than 3 months. In the case of a legal entity (company, foundation, etc.), we systematically ask to identify the director and the beneficiaries of this entity.
The banks we work with always check the legitimacy of the submitted passport and apply their own KYC rules. They may request a business plan and proof of activities, etc.
We rigorously apply these principles, which ensures our clients a long-term continuity of our services and quality relations with the UAE Authorities (in compliance with the legislation applicable to our profession) and with the banks (by presenting them with reliable files). Our professionalism explains our longevity and our reputation.
What the “Paradise Papers” reveal and why it’s a good thing
The “Paradise Papers” and similar scandals reveal that the questionable corporate structures recommended by some firms no longer work. In addition to the very negative impact on public opinion, these revelations show that tax administrations no longer want tax optimization structures that do not meet the following criteria:
- Compliance: the act of being controlled by a government authority, an administration, a tax convention, etc. This usually involves
- an audit of accounts
- submitting a tax return (even if it is nil)
- Substance: having an office, staff, a bank account, a resident leader, a computer server, etc. located in the country of registration of the foreign company. Tax Administrations no longer want “mailbox” companies but “real” companies that can justify that at least part of their business processes take place in country. This point is particularly essential to benefit from the advantages of non-double taxation treaties.
We are not a law firm and do not sell legal or tax advice. However, we feel it is important that our prospective and current clients understand that it is our opinion that Offshore companies no longer realistic solutions in the current global legal and tax environment.
The criteria of Compliance and Substance are essential today in planning legal and long lasting tax optimization packages.
The United Arab Emirates is an appropriate jurisdiction to meet all of these criteria under the following conditions:
- Create a Free-Zone company that allows you to rent an office in the UAE (there is no corporate tax in the UAE)
- Hiring staff locally (there is no employee tax in the UAE)
- Obtain a residence visa for the company’s management (there is no income tax in the UAE)
Please note that in recent months, bankers in Dubai have tightened the conditions for opening a bank account and are increasingly asking to justify existing professional activity in order to have offices and a residence visa for the leaders of the company.
The “Paradise papers” scandal has been disheartening; however, it is also beneficial to the industry in that it warns entrepreneurs of the great risks of questionable business structures and reemphasizes the importance of Compliance and Substance.
It is still possible to legally reduce the taxation of an international company, but it must be done through legitimate structures.
What do the “Paradise Papers” reveal, and why it’s a good thing for the global economy?
The “Paradise Papers” scandal and the regulations put in place across the globe in response to it reveal that the complicated business structures recommended by some firms no longer work. In addition to the very negative impact on public opinion of the international business community, these revelations show that tax administrations will no longer permit tax optimization structures that do not meet the key tests of “Compliance” and “Substance“.
Compliance refers to abiding by the regulations of any and all authorities, administrations, or tax conventions, etc. This usually involves maintaining truthful and up to date accounting, an annual audit of that accounting and submitting an annual tax return, even if it is nil.
Substance refers to having an office, staff, a bank account, a resident leader, a computer server, etc. all located in the country of registration of the company. Tax Administrations no longer accept “Post Office Box” companies but require a “real” company which can justify that at least part of their business cycle is carried out in the country of registration. This point is particularly essential to benefit from the advantages of non-double taxation treaties.
Merrit Asia is a “Corporate Services Provider”, and we do not sell legal or tax advice. However, we feel compelled to point out to our prospective and existing clients that the Offshore Company structure is, in most cases, no longer viable in the current global legal and tax regulation environment. The notions of Compliance and Substance are now mandatory tests to meet to set up any legal and lasting tax optimization package.
Hong Kong is an appropriate jurisdiction to meet all these criteria under the following conditions:
- Create a company with offices in Hong Kong. The corporate tax rate will then be at maximum 16.5%;
- Hire staff on site. Employer charges related to an employee are very low in Hong Kong.
It should also be noted that in recent years bankers in Hong Kong have tightened the conditions for opening a bank account and are increasingly demanding that an existing professional activity in connection with China or Hong Kong is demonstrated. Having local offices in Hong Kong makes it much easier to satisfy this demand and open a bank account in Hong Kong.
In the end, the “Paradise Papers” scandal will be beneficial if it demonstrates to entrepreneurs looking to create a company abroad that they should think twice about flawed business structures and seriously consider the importance of Compliance and Substance.
It is still possible to legally reduce the taxation of a company with global operations, but it will require a “real” and compliant company if it is to be sustainable.
Know Your Customer (KYC): an additional guarantee of reliability for your company in Dubai
Dubai has implemented the Know Your Customer (KYC) policy to fight against tax evasion and money laundering. This set of processes must be implemented by financial organizations in order to establish an in-depth knowledge of each client, natural person(s) who are beneficiaries of a legal entity. [UBO?]
The KYC can be applied in different ways by financial organizations. Each organization builds a database which makes it a competent representative with the UAE Authorities. By collecting this customer knowledge through a business intelligence and data analysis system, the financial institution guarantees its customers the transparency and sustainability of their activities in Dubai.
Know Your Customer: a Transparent Relationship
We know our customers and our customers know us. With our many years of experience as a Corporate Service Provider and our wide international customer base, Merritt Middle East has forged a solid reputation for credibility and reliability. We rely on a solid knowledge of the Dubai territory as well as the various international and national tax and banking regulations.
Benefit from our comprehensive and transparent services; establish your business in Dubai and opt for a legal and sustainable tax optimization model. Contact us for more information.