Outsourcing is the practice of having certain job functions done outside a company instead of having an in-house department or employee handle them.
Outsourcing can be defined as “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources.” Functions can be outsourced to either a company or an individual, in the same country or abroad.
However, for this article we came up with an alternative use case for outsourcing unique to the UAE.
Why do Companies Outsource?
There are many reasons why a company may choose to outsource certain business functions. Some of the most common reasons include:
Reducing and controlling operating costs
Improving company focus
Gaining access to specific skills
Freeing internal resources for other purposes
Streamlining or increasing efficiency for time-consuming functions
Maximizing use of external resources
Sharing risks with a partner company
Outsourcing is also known as Business Process Outsourcing (BPO). This is the process of hiring another individual or company, either domestically or internationally, to handle business activities for you.
It has become a common business practice that allows small and medium-sized businesses to gain services and skills they would usually find hard to develop, because of either financial or manpower restrictions, or possibly a combination of both. Meaning, you can grow your business as and when you need to, without any major investment.
It also allows your business to focus on core competencies and, more importantly, cut costs and improve efficiency, all very much hassle-free. As time has gone by over the last decade or so, business owners now realize that there are many reasons that companies, both big and small, outsource various jobs, but the most prominent advantage seems to be the fact that it saves money.
Outsourcing also allows companies to focus on other business issues while having the details taken care of by outside experts. It also means that a large amount of resources and attention that might fall on the shoulders of management professionals can be used for more important, broader issues within the company.
The specialized company that handles the outsourced work is often streamlined and will normally have world-class capabilities and access to new technology that a growing company simply couldn’t afford to invest in on their own. Plus, if a company is looking to expand, outsourcing is a cost-effective way to start building foundations in other countries, too.
Hidden benefits of outsourcing unique to the UAE
All these traditional use cases for outsourcing are valid. But there are other ways the transferring of (some of) your business functions abroad can benefit you. What is mentioned next is, however, unique to the UAE.
As you might know, the UAE has no income tax. The obvious benefit is that you do not pay any income tax on corporate profit and on the salary you pay to the employees. This is one of the reasons labour costs are low in the UAE, even though the overall living cost in for example Dubai, is not that cheap.
The main trick is that when outsourcing real activities to the UAE, you meet substance requirements. “Substance” is sort of the magic word in tax planning. It basically means that if real activity can be attributed to the UAE, the profits attributed to these activities can also be taxed in the UAE (at zero%). The more functions you transfer, the lower your overall tax bill could be
In this case you would outsource to a company within your own structure, but this is perfectly normal. You could set-up a company in one of the free zones
, or even migrate an existing entity
to the UAE.
Yes, there would be some paperwork involved, and transfer pricing issues might arise. But the UAE offers major tax benefits as compared to traditional outsourcing locations such as India or the Philippines. In fact, millions of Filipino and Indian workers are readily available to staff an office in Dubai.
Just think about it, or contact us
if you wish to talk about your options.