A company needs to incur several expenses when it is formed. After formation and commencement of operations the business expenses that are incurred on a day to day basis are those which are directly related to the operation of business. Tax is one of the expenses that are incurred by business. They way tax expense is calculated is a bit technical in nature. Tax calculations are complex in nature too and at times one can see a difference between the tax expense for the year and the cash payment for tax. This difference is due to several reasons.
In Dubai free zone, the companies that are established need not to pay any tax. This means that the company would be exempted from any sort of tax. The company would not be liable even to pay the minimum tax and this means that a large expense in the form of tax is also not need to be paid. Countries around the globe have some places within it that are not densely populated. This means that people that live here are in a very small percentage. However, in cities the people are in larger quantities and this means that the resources are largely consumed there. The purpose of establishing free zones in a country by its government is firstly to have some population of people in that particular area of the country. This would result in setting up of business operations in such remotely located areas too. The country, this way, achieve good mobilization of resources to places where no or minimal business activities are located or conducted. Any country needs some space for expansion. When large cities of a country are over populated, there are several problems that surface. So to spread the population evenly, the government of the country makes efforts and providing free zones is one of the steps that the government of the said country takes. In Dubai we know that a lot of people come here and settle in from different countries of the world. Those who come from first world countries normally settle in urban areas of the city since they are well equipped with money and money making strategies and investments. Those who belonged to third world countries come here to get good earnings.
When companies setup their manufacturing concerns in such free zones, the task is to get employees who are willing to work in the outskirts of the city. As told earlier that the free zone areas are normally those that are located in the isolated regions of the city, it is not an easy task to get employees to work in these areas. So the companies offer higher pay to compensate the reason for deploying those employees in those sub urban regions. Usually such offers are accepted by employees who belong to poor countries. The companies who get advantage of not paying any tax on their commercial activities have to incur some other expenses like increased cost of transportation due to isolated location of business. Company formation in Dubai at places declared as free zones is an uphill task.
Exemption from Tax Payment Augments the Profitability