Tax System in United Arab Emirates Taxation in Dubai

Established in 1971, The UAE Federation has developed into one of the most significant economies in the Middle East. The Federation has seven emirates that have implemented their tax laws. Abu Dhabi and Dubai are presently applying Tax system in UAE only in a few sectors. The UAE is a tax haven, providing significant tax benefits for those who want to work or set up a business in the UAE.

The Tax System in The United Arab Emirates 

The tax system in UAE – or negligible taxes paid – is one of the leading attractions to the province for many ex-pats. For example, there is no system for corporate and inheritance taxes, income tax paid by employees, and others, which makes it a perfect destination for investors.

Federal Taxes in The UAE

Some of the federal taxes in the UAE are listed below:

• Income Tax 

Since there are no individual taxes in the UAE, it does not levy an income tax. Therefore, employees do not file UAE income tax returns. Freelancers and self-employed individuals must be residents of the Emirates to enjoy this benefit.

• Individual Tax 

Employees can avail a social security regime of 17.5% in the UAE with GCC nationality. UAE employees pay 5%, and the employer bears 12.5%. 

• Corporate Tax

UAE corporate tax levies only on foreign banks and oil companies. Companies of the UAE are exempt from taxation for a long period. Unless the company is taxable under different income taxes, it does not need to pay corporate tax in Dubai.

• Double Taxation

The Ministry is working on expanding its Double Taxation Agreements (DTA) and Bilateral Investments Treaties (BIT) network to increase competitiveness in the UAE. It concluded 193 DTAs and BITs to exempt and reduce taxes on investment and profits from direct and indirect taxes and protect those investments from non-commercial risks.

The UAE is augmenting its network of Double Taxation Agreements (DTA) and Bilateral Investments Treaties (BIT) to boost strategic global alliances.

• Tourist Facility Tax

UAE provides world-class tourist facilities. There are different regimes for various tourist facilities. UAE tax rates for hotels, restaurants and resorts are the following:

• • Room rate (10%)
  • Municipality fee (10%)
  • Service charge (10%)
  • Tourism fee (6%)
  • City tax (6–10%)

• Property Transfer Tax 

The tax regime for the transfer of property varies by Emirate. Taxation in Dubai is 4% under regular inheritance ownership. The buyer and seller jointly share the burden, but the buyer pays the transfer fee.

• Inheritance Tax 

The tax system in UAE does not levy inheritance tax. Inheritance is managed according to Islamic Sharia principles if there is no will. If a person passes away without leaving a will, Islamic Sharia law determines how to disburse the property.

State/Regional Taxes in the UAE

There are three state or regional taxes in the UAE. These include the following:

• Free Trade Zones

Federal tax authority UAE allows customs, special tax, and import regimes for free-trade zones. Companies are exempt from paying corporate tax and 100% exceptions on import and export taxes for up to 50 years within these special areas.

• Tourism Fees per Emirate

Taxation in Dubai for the hotel may vary. The hotel fee per room for each night of occupancy ranges from AED 7 to AED 20, generally depending on the hotel’s standard. 

• Rental Tax

There is a difference in rates of taxes when it comes to rented properties. Residential tenants pay an annual rent of 5% in Dubai, while commercial tenants pay an additional rent of 10%. However, UAE nationals do not pay tax on their properties in Abu Dhabi, but their ex-pat companions pay 3%. 

Taxes on Goods and Services (VAT) In the UAE

There are two goods and services taxes in the UAE; these include:

• VAT 

After excluding certain items, the VAT rate is 5% in UAE. The articles on which 0% Vat is levied include:

• • Exports outside the GCC
  • Medical materials
  • Global transportation
  • Investment-grade special metals
  • Newly built residential properties
  • Education services

• Excise Tax 

The rate slab of the indirect taxes in the UAE on goods which are considered harmful to human health are as below:

• • Carbonated drinks (50%)
  • Energy drinks containing stimulating substances (100%)
  • Tobacco and its products include items listed in Schedule 24 of the GCC Common Customs Tariff (100%)

Refunds of VAT in The UAE

The provision of a refund of VAT was started in November 2018. Tourists, ex-pats, and residents pay VAT at the point of sale. But they are eligible for a refund if they fall under these conditions:

• • The Goods were bought from a retailer participating in the Tax Refund for Tourists Scheme.
  • Purchased goods aren’t exempted from the Refund Scheme of the FTA UAE.
  • The buyer intends to leave the USE within 90 days of supply with the goods.

Tourists can also get their refunds through a unique device installed at seaports, airports, and border ports. This device allows tourists to submit tax invoices electronically for purchases and copies of their credit cards and passports. The purchase goods must be from the outlets registered in the Refund Scheme, 

UAE Tax System For Foreigners

There is an income tax exemption in UAE for foreigners on international pension plans. Common Reporting Standard (CRS) signed by UAE authorises the Automatic Exchange of Information (AEOI) system.

Tax on Property and Wealth in The UAE

These are some property and wealth taxes in the UAE.

• Capital Gains Tax

No capital gains taxes in the UAE are levied unless there is an obligation to pay income or banking tax on the sales.

• Transfer Tax 

Transfer of property is charged with transfer tax that varies by Emirate. In Dubai, it is 4%, relatively higher than in other cities of the Emirates. In Abu Dhabi, this transfer of property tax is 2%.

• Municipality/Rental tax 

Rental taxes in the UAE for residential tenants stand at 5% of their annual rent, while an additional 10% for commercial tenants. 

• Stamp Duty 

There is no regime for stamp duty in the UAE.

• Inheritance Tax in the UAE

Islamic Sharia laws would deal with inheritance if the deceased did not leave a will since there is no inheritance tax.

Company Taxes and VAT Rates in the UAE 

Taxes in the UAE does not levy any corporation tax. Only companies or foreign banks in the Emirates get imposed with 55% of corporate tax.

• Excise Tax For Businesses 

Companies must file excise taxes in the UAE if they participate in the following:

• • Excise goods import
  • Excise goods production, to be utilised in the UAE
  • Accumulating excise goods
  • Excise warehouse overseeing the management

• VAT For Businesses

The UAE tax regime for VAT is 5%. If business supplies and imports range from AED 187,500 to AED 375,000 p.a., it must register for VAT. VAT-registered businesses should keep documents for government observation.

Import and Export Taxes in The UAE

Here are some import and export taxes applied in the UAE:

• Customs Duties

Customs duties on most items are estimated at 5% of Cost, Insurance, and Freight (CIF) value. Some varieties are exempt, but some products have custom duties as

• • Alcohol- 50% duty.
  • Tobacco products- 100% customs duty.
  • Gasoline – 5%

Tax Advice in The UAE 

You can save a lot in UAE, as there is no income tax, as you do not need to hire an accountant to fill income returns. You can have multiple tax benefits if you start your business journey in UAE. However, large businesses must seek professional financial advice on tax liability. The tax regime and tax benefits by the UAE government work as a big favour for the business involving research and development. Businesses can strategically take advantage of tax exemptions and excel in research.

Useful Resources

• • Federal Tax Authority
  • Taxation – The Official Portal of the UAE Government
  • Double taxation agreements
  • Free Zones | Ministry of Economy – UAE (moec.gov.ae)
  • PWC tax report on the UAE

Short Facts About Income Tax in Dubai

Income tax in Dubai is incredibly appealing to entrepreneurs; having no income tax is a significant trade edge. Companies and individuals in Dubai can focus more on prospective investments in the firm. The benefit of no income taxes in the UAE attracts global investors to develop their business strategies to keep a balance and approachable business environment.

Making Investments in Dubai

There are taxes in the UAE on earnings, except for the businesses operating in the oil & gas field. The research and Development domain is benefitted from a higher business valuation, more funding and low competition, along with tax-free merits. The businesses using R&D as their key tool are in standing to boost prices without lowering product demand and sales. Some examples of these businesses are consumer electronics, automotive, software & internet, pharmaceuticals, semiconductors and many more.

Investors should be careful while investing in the construction, hospitality and food services, financial and insurance sector as taxes fluctuates in these domains. The real estate sector has been gaining popularity lately, and in the coming 10 years, there will be promising returns from selling homes in UAE. The UAE will materialise as one of the world’s ultimate innovation hubs.

Conclusion

UAE welcomes people from all over the world to visit and work. Starting your business in UAE is easier than ever before. You will get great financial autonomy in UAE as there are no tax barriers. The taxes in the UAE were designed to attract investors and MNCs to facilitate the economy. The tax system in UAE does not impose a burden on its people and allows them to invest their earnings into more profitable practices. With many other means to generate revenue, the UAE government doesn’t believe in solely relying on taxes. 

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