The United Arab Emirates is a federation of seven Emirates – Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Quwain, Fujairah and Ras Al Khaimah – situated in the south-east of the Arabian Peninsula. The region is a very special place in which to live and work, drawing many people from other countries to experience a wonderful lifestyle in an exotic area. With stunning desert scenery, vibrant and sophisticated cities and its important geographical position within the Middle East, close to Oman and Saudia Arabia, the region is famed for its status as a modern trade, business and transport hub. Further, with no income tax, the UAE represents an opportunity for individuals and families to experience rewarding financial benefits and an enviable lifestyle.
When considering a move abroad, the tax conditions for the individual and for entrepreneurs and business people are among the most important considerations. It is essential to be completely aware of what the tax obligations and benefits will be in the new country, as this information will be one of the major factors in influencing the eventual choice of destination.
In this article we will examine the rules and regulations surrounding all types of tax in the United Arab Emirates, both for individuals and for businesses, to make sure you are equipped with all the information you need in order to make an informed decision.
Taxes Not Charged
In contrast to many countries worldwide, the UAE does not levy the following taxes:
- No Income Tax Unlike many countries the UAE does not impose income tax on employees, freelancers and the self-employed who are residents of the UAE, making it a very attractive destination for high-income individuals;
- No Inheritance Tax Similarly there is no Inheritance Tax charged in the UAE;
- No Social Security Tax for non-GCC nationals;
- No Capital Gains Tax unless a company is taxable under another income tax;
- No Estate or Gift Tax;
- No Wealth Tax;
- No Luxury Tax;
- No taxes on international pensions;
- No Stamp Duty on property purchases/sales.
The following are taxes charged on individuals and/or businesses in the UAE:
Social Security Tax
Employees who are Gulf Co-operation Council (GCC) nationals in the UAE are subject to a Social Security regime of 17.5%. UAE nationals who are employees pay 5% (deducted automatically from their salary), with the remainder being paid by the employer. Employees of companies and branches registered in a Free Trade Zone (FTZ) are also subject to the Social Security regime. Residents of other GCC nations may be subject to varying contributions according to their home country. Non-GCC nationals are not subject to Social Security Tax in the UAE;
It was introduced in 2017 and is levied on certain goods and services, typically those which are considered to be a threat to the environment or to human health. These goods are known as “excise goods”. The government’s aim in introducing this tax was to encourage the reduction of consumption of harmful products, with the revenue raised being used on government services for the public benefit. Products that fall under this definition include:
- Carbonated drinks including concentrations, powders, gel or extracts intended to be made into a carbonated beverage;
- Energy drinks containing stimulating substances including caffeine, taurine, ginseng and guarana and other substances with a similar effect. Also included are any concentrations, powders, gel or extracts intended to be made into such beverages;
- Sweetened drinks;
- Tobacco and tobacco products including all items listed under Schedule 22 of the GCC Common CustomsTariff;
- Electronic smoking devices and tools, together with the liquids used in such devices.
Rates of Excise Tax:
- Carbonated drinks – 50%
- Energy drinks – 100%
- Tobacco products – 100%
- Electronic smoking devices and liquids used in such devices – 100%
- Any product with added sugar or sweeteners – 50%
Business required to register for Excise Tax are:
- Those who import excise goods into the UAE;
- Businesses engaged in the production of excise goods where they are released for consumption in the UAE;
- Businesses which stockpile excise goods in the UAE in certain cases;
- Those who are responsible for overseeing an excise warehouse or designated zone.
Introduced by the UAE in January 2018, VAT is levied on the majority of goods and services. A rate of 5% VAT is levied at the point of sale and the income is used to fund government public services. The government intends for the income from VAT to help reduce the country’s dependence on oil and other hydrocarbons as a source of revenue.
Businesses are required to register for VAT if their taxable supplies and imports exceed AED 375,000 per annum. It is optional to register for VAT if their payment for supplies and imports exceeds AED 187,500 per annum. VAT applies equally on tax-registered businesses managed on the UAE mainland and in the free zones. However, if the UAE Cabinet defines a certain free zone as a ‘designated zone’, it must be treated as outside the UAE for tax purposes. The transfer of goods between designated zones is tax-free.
Business pay the government the VAT that they have collected from their customers (by adding it onto the price they charge for their goods), while the government refunds them on tax they have paid to their suppliers.
Foreign business can recover the VAT they incur when visiting the UAE. Tourists in the UAE also pay VAT at the point of sale. (See “VAT Refund For Tourists” below.)
VAT returns must be filed annually, usually within 28 days of the end of the tax period as defined for each type of business. The standard tax period is quarterly for businesses with an annual turnover of less than AED 150 million, and monthly for business with incomes greater than AED 150 million. Returns are filed online through the FTA portal.
VAT Refund For Tourists
Introduced in November 2018, the program enables tourists and visitors to the UAE to claim a refund on VAT for purchases they have made while in the UAE, subject to certain conditions:
- The goods must be purchased through a retailer taking part in the Tax Refund For Tourists scheme and the goods must be eligible under the scheme;
- The purchaser must have the explicit intention to leave the UAE along with the purchased goods, within 90 days of the purchase;
- The process of purchase and export of goods must take place according to the requirements and procedures of the FTA.
The VAT refund is done through an electronic system connecting retailers registered in the Tax Refund For Tourists Scheme with all ports of entry and exit from the UAE. The purchaser can claim their refund using a device placed within the departure port – airport, seaport or border port – by submitting the tax invoices from their purchases along with copies of their passport and credit card. The tourist can receive their VAT refund in cash (local currency – UAE dirhams) or have it refunded to their credit card.
Import/Export Taxes in the UAE
For most items, customs duties are calculated at 5% of the Cost, Insurance and Freight (CIF) value. There are exemptions for some categories. Alcohol, however, carries a 50% customs duty and tobacco products carry a 100% duty.
The UAE Ministry of Finance announced in January 2022 that it would be introducing federal Corporate Tax (CT) on the net profits of businesses. Previously Corporate Tax had only been levied on oil companies and international banks. This tax will come into operation for other types of business on either 1 July 2023 or 1 January 2024 depending on the financial year followed by the business. In either case the tax becomes applicable from the beginning of the financial year starting on or after 1 June 2023.
According to the official portal of the UAE Government the aim of Corporate Tax is to:
- cement its position as a leading global hub for business and investment;
- accelerate its development and transformation to achieve its strategic objectives;
- reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.
Corporate Tax will be levied on:
- Individuals and businesses which conduct business under a commercial licence in the UAE;
- Free zone businesses. The UAE Corporate Tax regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business set up in the UAE’s mainland;
- Any foreign entities or individuals if they conduct regular or ongoing business in the UAE;
- Businesses involved in real estate management, construction, development, agency and brokerage activities.
Exemptions will apply to:
- Businesses engaged in the extraction of natural resources as they are subject to the current Emirate level corporation taxation;
- Any dividends and capital gains earned by a UAE business from its qualifying shareholdings;
- Qualifying intra-group transactions and reorganisations, subject to compliance with the necessary conditions;
- An individual earnings salary and other employment income whether received from the private or public sector;
- Interest and other income earned by an individual from bank deposits or savings schemes;
- Income earned by a foreign investor from dividends, capital gains, interest, royalties and other investment returns;
- Income earned by individuals in their personal capacity (rather than as a business), from investment in real estate;
- Dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity (rather than as a business).
Rates of Corporation Tax will be as follows:
- For taxable income up to AED 375,000 – 0%
- For taxable income over AED 375,000 – 9%
A separate tax rate (to be specified) applied to large multinational companies meeting specific criteria set within “Pillar 2” of the OECD Base Erosion And Profit Shifting Project, which is an international program of collaboration aimed at ending tax avoidance.
More information about Corporate Tax can be found at the website of the Federal Tax Authority.
Taxes In Tourist Facilities
Taxes can be charged by restaurants, hotels, apartments and resorts in the UAE at the following rates:
- 10% tax on the room rate;
- 10% service charge;
- 10% municipality fees;
- 6%-10% City tax;
- 6% tourism fee.
In Dubai, hotels charge a “Tourism Dirham Fee” of between AED 7 to 20 per room per night (for a maximum of 30 consecutive nights), depending on the category or grade of the hotel.
Hotels in Abu Dhabi charge an extra amount of 4% of the hotel charge plus AED 15 per night per room.
Hotels in Ras Al Khaimah charge AED 15 per room per night as a tourist fee.
Property Transfer Tax
Transfer charges apply when a property is bought or sold in the UAE. This varies according to Emirate, for example 4% in Dubai while Abu Dhabi charges only 2%. The transfer fee is usually divided equally between the buyer and the seller.
There is also an Administration Fee of AED 540 or 147, paid in conjunction with the transfer fee.
In addition there is a Registration Fee, the rate of which varies according to the cost of the property:
- For property worth up to AED 500,000 the fee is AED 2,000;
For property worth over AED 500,000 the fee is AED 4,000
The Registration Fee is paid by the buyer of the property.
Once the purchase has been completed the new owner must obtain an ownership certificate which costs AED 250.
New owners of commercial property also pay 5% VAT on the purchase price.
There are no taxes and fees for real estate owners but they do pay an annual fee for maintenance of the property, for which the money is invested in capital repair, common areas maintenance, children’s playgrounds, sports facilities and similar infrastructure. This charge is usually established by the developer and is typically between $15 and $60 per square metre. The fee is paid yearly in advance. If the property is rented out, the owner still pays the maintenance fee.
When tenants rent a residential property they pay a rental Municipality Tax which is automatically added to their utilities bill. The percentage of Municipality Tax varies according to the Emirate but for example, tenants in Dubai pay 5%, while in Abu Dhabi UAE residents do not pay this tax, however for ex-pats the rate is 3%. In Sharjah everyone pays 2%. Tenants of commercial properties pay 10% Municipality Tax.
Free Trade Zones
Free Trade Zones in the UAE are special economic zones that offer tax concessions and customs duty benefits to foreign resident investors. There are 45 such zones in the UAE including:
Dubai South, International Free Zone Authority, Dubai Multi Commodities Centre, Sharjah Airport Intl Free Zone, Sharjah Media City, Ras Al Khaimah Economic Zone, Umm Al Quwain Free Trade Zone, Dubai Airport Free Zone, Dubai World Trade Centre, Dubai Silicon Oasis, Jebel Ali Free Zone, Abu Dhabi Airport Free Zone, Twofour54, Industrial City of Abudhabi, Dubai Internet City, Dubai Academic City, Dubai Biotech Research Park, Dubai Design District, Gold and Diamond Park, Dubai Healthcare City, Dubai Industrial City, Dubai International Financial Centre, Dubai Financial Village, Dubai Media City, Dubai Outsource Zone, Dubai Studio City, International Media Production Zone, Hamriyah Free Zone, Ajman Free Zone, Fujairah Free Zone and Fujairah Creative City.
In these zones, expatriates and foreign investors can have full ownership of companies and are able to take advantage of efficient infrastructures and distinct services that allow smooth, integrated workflows.
Benefits Of Free Trade Zones
- 100% foreign ownership;
- 100% repatriation of capital and profits;
- Efficient and fast business set-up procedures;
- Well-developed business communities;
- A variety of options at competitive rates;
- 100% exemption from corporate tax for 15 to 50 years;
- 100% exemption from income taxes;
- 100% exemption from customs duty;
- Exemption from VAT
- Separate and independent laws and regulations;
- Easy access to regional and global markets;
- Modern, sophisticated infrastructure.
The UAE has around 193 Double Taxation Agreements and Bilateral Investments Treaties with other nations including:
Algeria, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Czechia, Egypt, Estonia, Finland, France, Georgia, Germany, India, Indonesia, Ireland, Italy, Kazakhstan, Republic of Korea, Latvia, Lebanon, Luxembourg, Malaysia, Malta, Mauritius, Montenegro, Morocco, Mozambique, the Netherlands, New Zealand, Pakistan, Panama, Philippines, Poland, Portugal, Romania, Serbia, Seychelles, Singapore, Spain, Sri Lanka, Sudan, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Türkiye, Turkmenistan, Ukraine, Uzbekistan, Venezuela, Vietnam, and Yemen.
These treaties apply to tax residents of one country who are earning an income in another country, to avoid the problem of being taxed in two countries and to encourage strategic global partnerships. Double Taxation Agreements protect individuals and businesses from overseas from paying twice – once in their country of origin and again in the new country. The aim of the UAE government in participating in double-tax agreements is to:
- Promote the development goals of the UAE and increase the diversity of sources of national income;
- Eliminate double taxation, additional indirect taxes and tax evasion;
- Eliminate barriers to cross-border trade and investment flows;
- Protect taxpayers from direct and indirect double taxation;
- Promote the exchange of goods and services and the free movement of capital.
Under the Double Taxation Agreements the individual or company pays taxes in the country where the income is made and submits a tax deduction in the country of residence.
Paying Taxes In The UAE
Emara Tax is an online platform through which individuals and businesses in the UAE can access the digital systems for registering, filing tax returns, paying their taxes and seeking refunds. Emara Tax integrates with the UAE Central Bank and UAE PASS in order to streamline the user experience and make it easier to taxpayers to comply with their tax obligations.
‘Raqeeb’ Whistleblower Program For Reporting Violations
The UAE Federal Tax Authority (FTA) has developed a program named Raqeeb to address the issue of tax violations and evasion and to raise levels of tax compliance in the country. Companies or individuals found to be fraudulently evading their tax obligation will be prosecuted and subject to penalties.
Under the program, anyone can report any irregularities or tax evasion to the FTA, which will conduct investigations and, in some cases, may grant monetary rewards for such reporting.
The whistleblowing form is available here.
Tax Information Exchange
Since 2018 the UAE has signed up to the Common Reporting Standard (CRS), a unified system for exchanging tax information. Over 100 other countries are signed up to the CRS including Canada, several European and Asian countries and island states such as Antigua & Barbuda and St Kitts & Nevis.
Under the CRS, banks, investment institutions and insurance companies keep the local authorities informed of non-residents’ bank accounts. This information is exchanged between the countries, making it easier to identify irregularities, debts and non-payment of taxes.
Further information on tax in the United Arab Emirates is available from the Federal Tax Authority and the Ministry of Finance
The United Arab Emirates prides itself on its high standard of living and conducive conditions for foreign investment, offering in return high earnings, a modern and sophisticated lifestyle and beneficial business environment. All these factors combine to attract individuals and businesses from all over the world, drawn by the significant opportunities this modern and vibrant region offers.