You can own a Dubai company while you live in Australia, but if you run it from Australia it can become an Australian resident company taxed in Australia, and even if it does not, the controlled foreign company rules can tax you on its passive income.
The residency test for foreign companies
A company incorporated outside Australia is an Australian tax resident if it carries on business in Australia and has its central management and control here. Since the High Court's decision in Bywater Investments Ltd v Commissioner of Taxation [2016] HCA 45, the ATO's view in TR 2018/5 is that a company whose central management and control is in Australia will usually be carrying on business here too. In practice, the question becomes where the company's real decisions are made.
What central management and control means
It is the high-level control of the company: strategy, major contracts, finance, appointing and directing management, and what happens to profits. It sits with whoever actually makes those decisions, wherever they are when they make them. A UAE registered address, a UAE bank account and board minutes signed in Dubai do not help if the decisions are really made by you in Australia and rubber-stamped elsewhere.
What happens if it is resident
A Dubai company with its central management and control in Australia is taxed in Australia on its worldwide profits, like an Australian company, and the UAE also taxes it under its own rules. With no tax treaty between the two countries, there is no tie-breaker to fall back on.
The controlled foreign company rules
Even if the Dubai company is not resident, it is a controlled foreign company if Australian residents control it. The UAE is not a listed country for these rules, so the company's tainted income, broadly passive income such as interest, royalties, rent and some dealings with related parties, can be attributed to you and taxed in Australia each year. A company passes the active income test, and avoids most attribution, if its tainted income is less than 5% of its gross turnover. A genuine operating business usually passes. A Dubai company that mainly holds investments usually does not.
Paying yourself
While you are an Australian tax resident, dividends from the Dubai company and salary it pays you are part of your worldwide income and taxable in Australia. Work you do while physically in Australia is Australian-sourced in any case. The UAE's 0% personal tax does not help you until you have stopped being an Australian resident.
How Australians handle it in practice
If you are moving within months, incorporate the company and do the set-up work, but keep its trading and real decision-making until after you leave. If you are staying in Australia, either accept that the company may be Australian resident and plan for that, or give real decision-making to directors who live in the UAE and genuinely exercise it. Keep records of where and by whom decisions are made. Our overview of moving to Dubai from Australia and our guide to your own tax residency cover the personal side.
Where Neo Legal fits
We set up the Dubai company and its governance so that board processes, delegations and records match where decisions are really made, and Cornwalls advises on the Australian residency and CFC position. The two pieces of advice are written together, which is what matters if the ATO later asks.
Frequently asked questions
Can an Australian resident own a company in Dubai?
Yes. There is no restriction on Australians owning a UAE company. The tax consequences in Australia depend on where the company is managed and whether it is a controlled foreign company.
Will my Dubai company be taxed in Australia if I run it from Australia?
It can be. A foreign company is an Australian tax resident if it carries on business in Australia and its central management and control is here, which is usually the case if you make the real decisions from Australia.
What is a controlled foreign company?
A foreign company controlled by Australian residents. If it is in an unlisted country such as the UAE and fails the active income test, its passive income can be attributed to its Australian controllers and taxed in Australia each year.
Does a Dubai operating business get caught by the CFC rules?
Usually not for its trading income. A company passes the active income test if its tainted income is less than 5% of gross turnover. Holding companies and investment vehicles are more likely to be caught.
How do I keep my Dubai company from being Australian resident?
Make sure its high-level decisions are genuinely made outside Australia, either by you after you have moved or by directors who live in the UAE and actually decide. Neo Legal sets up the board processes and records to match.
This article is general information on the position at the date shown and is not legal advice. It is not tax or financial advice either: your position depends on your residency, your assets and your structures, so speak to us before acting on it.
