Taxation in the UAE is quite peculiar. What if we tell you there is no federal tax regime in The United Arab of Emirates. Sounds like a TAX HEAVEN at first. Doesn’t it?
Well, hold your horses. Before letting your imagination run wild, read this comprehensive guide that tells you everything about taxation in UAE.
The Taxation in UAE – Overview
There is no federal income tax in the UAE, and it does not have a system for a corporate, inheritance, and other taxes either. This tax-neutrality is one of the primary reasons why UAE is one of the MOST lucrative business spots globally while appealing to millions of expatriates across the globe.
Taxation in UAE is determined on a territorial basis, and it is subject to the tax decrees enacted by the respective Emirates; and they introduced VAT comparatively late in January 2018.
Now let’s talk about how taxation in UAE plays works.
Federal Taxation in the UAE
The UAE does not levy taxes on your income, and an individual tax does not apply in the emirates. Hence, you do not file an income tax return. Income tax applies to all residents of the UAE that are employees, freelancers, and self-employed.
Those working in the UAE with the GCC nationality (including the UAE) are obliged to social security regime of 17.5%. Employees pay 5% (automatically deducted from their paycheck), and employers pay the rest of 12.5%.
Employees working with companies registered in FTZ (Free Trade Zone) are also subject to social security regime. Other GCC residents are subject to the social security regime of their respective countries, whereas non-GCC nationals are not subject to any social security in the UAE.
Corporate taxes in the UAE only applies to foreign banks and oil companies. Please note that businesses registered in the UAE are tax-exempt for an extended period. There are no taxes on capital gains and profits unless the company is subject to any other income tax.
The UAE is aggressively working on Double Taxation Agreements (DTA) and Bilateral Investment Treaties (BIT) networks. In addition, the UAE government has expanded on these two promising programs for more strategic global partnerships.
Around 193 DTAs and BITs have been secured to reduce or exempt direct and indirect taxes on investments and profits.
Tourist facility tax
Restaurants, hotels, and resorts’ taxes are as follows:
|City tax||6 – 10%|
Property transfer tax
The property transfer is taxable, and it varies from emirates to emirates. For example, Dubai has a 4% property transfer tax. A buyer has to pay this tax.
The UAE does not have an inheritance tax. In case of any dispute or obscurity, these matters are dealt with under Islamic Shariah laws.
Regional taxes in the UAE
Free Trade Zones
There are 40 Free Trade Zones throughout the UAE. Each has its special tax, custom, and import regimes. These are the exclusive areas where companies are exempted from taxes, and the period is generally between 15 to 50 years and renewable. Moreover, businesses operating within Free Zones are fully exempted (100%) from import and export taxes.
Hotel taxes are different in every Emirate, and it varies from AED 7 to AED 20 for each night (up to 30 nights) per room to give you a little go. It would be best if you also considered the hotel’s grade.
On the other hand, Abu Dhabi is quite expensive and charges 4% more fees on your hotel bills. It is AED15 per room (each night), and hotels in Ras Al Khaimah also charge AED 15 per room.
Rental taxes are also subject to Emirates. Residential tenants in Dubai are entitled to pay 5% of their annual rental as their rental tax and 10% for commercial tenants.
Abu Dhabi does not levy taxes on citizens on their properties; however, their ex-pats must pay 3%. Tenants in Sharjah pay 2% rental tax.
Goods and Services (VAT) Taxation in UAE
There are two types of Goods and Services taxes in the UAE.
There is 5% VAT in the UAE with certain exceptions. Some items are exempt from the VAT. During the Pandemic, the UAE exempted PPE (Personal Protection Equipment), Masks, Gloves, Sanitizers, and Antiseptics to facilitate citizens. Below are the Goods and Services with no VAT if you want to read about VAT registration in UAE.
- Exports outside the GCC
- International transportation
- Precious metals (Investment-grade)
- New residential properties
- Specific educational and healthcare services
The FTA implemented the excise tax in 2017, which is an indirect tax imposed on products. Furthermore, the UAE government believes that these products harm people’s health or the environment.
Such goods are:
- Carbonated drinks – 50% (excluding unflavored carbonated water)
- Energy drinks – 100% (containing stimulating substances such as caffeine, taurine, ginseng, etc.)
- Tobacco and Tobacco products – 100% (listed in schedule 24 of the GCC standard custom tariff)
VAT refunds in the UAE
Whether you are a tourist, ex-pat, or resident of the UAE, you inevitably pay VAT while buying something. The UAE has allowed tourists to apply for VAT refund in Dubai given the below conditions:
They must purchase products from a registered retailer with Tourist Tax Refund Scheme. Additionally, they should also list the purchased goods in the federal government’s refund scheme.
They must export goods within three months of supply out of the UAE.
The entire purchase and export process should be per the FTA (Federal Tax Authority). Travelers receive their refunds through a unique device at airports, sea, and border ports. They are supposed to submit their tax invoices for products they have purchased through this electronic device. Additionally, they also need to submit their passport and credit/debit card copies.
Tax procedure for foreigners in the UAE
The UAE does not impose income tax on those working in the UAE, irrespective of their nationality or residency status. However, they are subject to pay taxes in their home country based on its tax laws.
The UAE has signed double tax treaties with over 100 countries. You may further explore these agreements on the Finance Ministry website.
There is no tax imposition on the international pension plan for those having UAE residency.
Company VAT and taxation in the UAE
By and large, there is no corporation tax levied on businesses. Constitutionally, Emirates can impose up to 55% corporate tax. However, this is only applicable to foreign oil companies and bank branches.
Excise tax on business
It applies to the following:
- The import of goods in the UAE
- The excise goods production to be consumed in the UAE
- Amassing excise goods in the UAE (under certain conditions)
- Individuals managing excise warehouse or designated zone
- Businesses may register for excise tax on the FTA website (e-service section)
VAT for business
There is 5% VAT in the UAE. For taxable supplies and imports exceeding AED 37500 per annum, businesses must register for VAT, whereas businesses at a threshold of AED 187,000 per annum may register voluntarily.
Businesses that are VAT registered must:
- Charge VAT on goods
- Apply for the VAT refund for goods and services they purchase
- Maintain the accurate records
- Import and Export taxes in the UAE
It is 5% of CIF (Cost, Insurance, and Freight) value for most goods, but certain products are exempt. The duty on alcohol and tobacco products is 50% and 100%, respectively. However, the applicable VAT on Gasoline is 5%.
Need a hand while dealing with the taxation in UAE?
Although the UAE has no typical income tax system, it is undoubtedly one of a kind. Please don’t assume that you can conduct profitable business without proper taxation knowledge, and there are intrinsic federal rules you must learn. Moreover, it would help if you also had a sound accounting partner who understands the nitty-gritty of the UAE tax laws.
N.R. Doshi and Partners is an accounting firm based in Dubai, serving businesses for over 30 years. We know the game’s rules while helping you navigate UAE VAT’s treacherous waters and compliance regulations.
We are just a call away if you are looking for an accounting firm to guide & assist you properly on tax, audit, company formation, M&A, or any accounting-related matters. Alternatively, you can also write to us at email@example.com; one of our accounting experts will get back to you shortly.