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taxation in UAE

Everything you need to know about the Taxation in UAE


The taxation in UAE is quite peculiar. What if we tell you there is no federal tax regime in The United Arab of Emirates. Sounds like TAX HEAVEN at first. Doesn’t it?

Well, hold your horses. Before you let 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. It does not have a system for a corporate, inheritance, and other taxes either. It is one of the primary factors that make the UAE a lucrative business spot attractive to millions of ex-pats all over the globe.

The taxation in UAE is determined on a territorial basis. It is subject to the tax decrees enacted by the respective Emirates. They introduced VAT comparatively late in January 2018.

Now let’s walk over how the taxation in UAE plays out.


Federal taxation in the UAE

Income tax

The UAE does not levy taxes on your income. An individual tax does not apply in the emirates. Hence, you do not need an income tax return. It applies to all residents of the UAE that are employees, freelancers, and self-employed.

Individual tax

Those working in the UAE with the GCC nationality (that includes 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 country whereas non-GCC nationals are not subject to any social security in the UAE.

Corporate tax

Corporate taxes in the UAE are only applied to foreign banks and oil companies. Please note businesses that are registered in the UAE are tax exempted for a period that can be extended. There are no taxes on capital gains and profits except a company is subject to any other income tax.

Double taxation

The UAE is aggressively working upon Double Taxation Agreements (DTA) and Bilateral Investment Treaties (BIT) network. The UAE government has already expanded a great deal on these two promising programs for more strategic global partnerships.

As of now, around 193 DTAs and BITs have been secured to reduce or exempt direct and indirect taxes on investments and profits.

Tourist facility tax

taxation in UAE

Restaurants, hotels, and resorts taxes are as follows:

FacilityTax Rate
Room10%
Service charges10%
Municipality fees10%
City tax6 – 10%
Tourism fees6%

Property transfer tax

The transfer of property is taxable and it varies from emirates to emirates. Dubai for example has a 4% property transfer tax. A buyer is generally supposed to pay this tax.

Inheritance tax

The UAE does not have an inheritance tax. In case of any dispute or obscurity, these matters are dealt with in accordance with Islamic Shariah laws.


Regional taxes in the UAE taxation in the UAE

Free Trade Zones

There are 40 Free Trade Zones throughout the UAE. Each of them has its own special tax, custom, and import regimes. These are the exclusive areas where companies are exempted from taxes. The period is generally between 15 to 50 years and renewable. Moreover, businesses operating within Free Zones are fully exempted (100%) on import and export taxes.

Tourism tax

Hotel taxes are different in every Emirate. To give you a little go, it varies from AED 7 to AED 20 for each night (up to 30 nights) per room. You should consider the grade of the hotel too.

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). Hotels in Ras Al Khaimah also charge AED 15 per room.

Rental tax

Rental taxes are also subject to Emirates. Residential tenants in Dubai are entitled to pay 5% of their annual rental as their rental tax. It is 10% for commercial tenants.

Abu Dhabi does not levy taxes on citizens on their properties; however, their ex-pats have to 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.

VAT

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.

  1. Exports outside the GCC
  2. International transportation
  3. Precious metals (Investment-grade)
  4. New residential properties
  5. Certain educational and healthcare services

Excise tax

The excise tax was implemented in 2017. It is basically an indirect tax imposed on products the UAE government believes to be harmful to human health or the environment.

Such goods are:

  1. Carbonated drinks – 50% (excluding unflavored carbonated water)
  2. Energy drinks – 100% (containing stimulating substances such as caffeine, taurine, ginseng, etc.)
  3. Tobacco and Tobacco products – 100% (listed in schedule 24 of the GCC common 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 retailer who is registered with Tourist Tax Refund Scheme

Goods they buy should be listed in the federal government’s refund scheme

They must export goods within 3 months of supply out of the UAE

The entire purchase and export process should be in accordance with the FTA (Federal Tax Authority) Travelers receive their refunds through a special device at airports, sea, and border ports. They are supposed to submit their tax invoices of products they have bought through this electronic device. They need to submit their passport and credit/debit card copies as well.

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 is applicable on the following:

  1. The import of goods in the UAE
  2. The excise goods production to be consumed in the UAE
  3. Amassing excise goods in the UAE (under certain conditions)
  4. Individuals managing excise warehouse or designated zone
  5. 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:

  1. Charge VAT on goods
  2. Apply for the VAT refund for goods and services they purchase
  3. Maintain the accurate records
  4. Import and Export taxes in the UAE

For most goods, it is 5% of CIF (Cost, Insurance, and Freight) Value. Certain products have the exemption. Alcohol and tobacco products have 50% and 100% duties respectively. 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 certainly one of a kind. Please don’t assume that doing profitable business without proper taxation knowledge is as easy as a hot knife through butter. There are intrinsic federal rules you must learn and need a sound accounting partner who understands the nitty-gritty of the UAE tax laws.

N.R. Doshi and Partners, an accounting firm based in Dubai have been serving businesses for over 30 years knows the rules of the game, and helps you navigate the tricky waters of the UAE VAT and compliance regulations.

If you are looking for an accounting firm to genuinely guide and assist you on Tax, Audit, Company formation, M&A, or any Accounting related matters, we are just a call away. Contact us by simply writing to us at enquiries@nrdoshi.ae, one of our accounting experts will shortly get back to you.

Source: Taxation – The Official Portal of the UAE Government


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