A Complete Guide About the Tax System in the UAE

Despite being a business hub for investors and business people across the globe, the tax system of the UAE is, without any surprise, very business-friendly as federal income tax is not a part of it. But that doesn’t mean you should get your things together and buy a ticket to Dubai for setting up a business. Other than income tax, there exist some other types of taxes in UAE that everyone has to pay. Read on to find out more details about those taxes.

Tax System in the UAE

For expats, the UAE’s tax structure is one of the most appealing aspects of the country. For example, there is no system for inheritance or corporation taxes, and employees do not pay income tax.

There was also no Value Added Tax (VAT) until January 2018. This sales tax on services, products, and goods was implemented at a modest rate of 5 percent. Sellers of certain products such as tobacco and energy drinks that are declared dangerous to human health by the UAE government have to pay an excise tax.

Tax System for Foreigners in the UAE 

There is no income tax in the UAE for individuals who work in Dubai, Abu Dhabi, or any other Emirate state, no matter what their residency status is. People who haven’t taxed residents of the country, on the other hand, may be required to pay income tax in their home country, depending on their own taxation regulations. Around 137 nations have double tax treaties with the UAE.

On overseas pension schemes, UAE residents are not subject to any taxes.

The United Arab Emirates has joined hands with the Common Reporting Standard (CRS), a global standard for the Automatic Exchange of Information (AEOI) system. CRS is a legislative framework that enables countries to exchange tax data with one another. This is quite useful for things like tax evasion investigations.

The Ministry of Finance’s website has more information about these treaties.

Regional Taxes in the UAE

There are some regional taxes that should be paid to the authoritative bodies of the area. These taxes are:

Tourism Charges in an Emirate

The cost of a hotel room varies from one Emirate to another. In general, the hotel fees depend heavily on the grade of the hotel in which a tourist wants to book a room. A Tourism Dirham Fee of AED 7 to AED 20 is charged per accommodation in Dubai for each night of occupancy (up to 30 nights).  AED 15 per room per night is charged by Ras Al Khaimah hotels as a tourism fee.

Abu Dhabi has a fee of AED 15 per night, per room and also adds a 4% tax to hotel bills.

Rental Tax in the UAE

The taxation on rented homes and buildings is different in different Emirates. In Abu Dhabi, Emirates ID holders are exempted from paying property taxes, but expats must pay 3 percent tax. In Sharjah, every residential tenant has to pay a 2 percent rental tax. In Dubai, commercial tenants pay up to 20 percent rental tax and all tenants pay a rental tax of 5% of their yearly rent. 

Taxes in Free Zones of the UAE

There are above 40 free trade zones that are currently operational in the Emirates. These free zones have implemented unique customs, tax, and import regimes within themselves. Within these economic areas, businesses have 50 percent exceptions on corporate tax for up to fifty years and are 100 percent exempted from paying import and export taxes.

Federal Taxes in the UAE

Following are some of the federal taxes that are applicable in the UAE:

Inheritance Tax

Inheritance tax does not exist in the United Arab Emirates. However, if there is no will, inheritance is handled as per Islamic Sharia principles no matter what the nationality of the deceased was.

Income tax

There is no income tax in the United Arab Emirates.  As a result, there is no need to file an income tax return because there is no applicable individual tax here in the UAE. Residents of the Emirates who are self-employed or pursuing freelancing are subject to the same rules.

Individual Tax

A 17.5 percent social security system is implemented for the employees in the UAE who are GCC nationalities (including the UAE). Citizens of the UAE having Emirates ID pay 5% (which is deducted automatically from their salary) and the employer pays the remaining 12.5%.

Employees of enterprises and branches registered in a free zone are also subject to social security requirements. In addition, residents of other GCC (Gulf Cooperation Council) countries may be required to pay different social security contributions as compared to the residents of their home country. Non-GCC nationals, on the other hand, are not covered by social security in the UAE.

Tourist Facility Tax

Resorts, restaurants, hotels, and other related ventures may ask the tourists to pay the following taxes:

• Tourism fee (6%)
• 10% on the room rate
• Municipality fee (10%)
• Service charge (10%)
• City tax (6% to 10%)

Corporate Tax

Only foreign banks and oil firms have to pay corporate tax in Dubai and the UAE. There are 45 free zones in the country, where enterprises registered in the UAE don’t have to pay tax for an extendable time. Unless the corporation is subject to another income tax, there are no capital gains taxes applicable to the company.

In 2023, businesses with net profits of AED 375,000 or more will be subject to a federal corporate tax of 9%.

Double Taxation

In hope of encouraging strategic global partnerships, the UAE is expanding its network of Bilateral Investments Treaties (BIT) and Double Taxation Agreements (DTAs). Around 193 DTAs and BITs have been signed by the UAE with the aim of reducing or exempting direct and indirect taxes on profits and investments.

Property Transfer Tax in Dubai

UAE property transfers are subject to a transfer charge. The percentage varies from Emirate to Emirate. In Dubai, for example, it is 4 percent. In general, the buyer pays the transfer fee, although both the buyer and seller are responsible for it.

Taxes on Imports and Exports in the UAE

Customs Duties

Customs charges are calculated at 5% of the (CIF) value (Cost, Insurance, and Freight) for most commodities.  tobacco items are subject to a 100% customs duty, while alcohol is subject to a 50% duty. Furthermore, gasoline is subject to a 5% VAT. Some categories are exempted from clearing custom duties. 

Taxes on Services and Goods in the UAE

VAT and excise duty are the taxes that apply to goods and services in the United Arab Emirates.

Excise Tax

At the beginning of January 2017, the UAE imposed an excise tax. This indirect tax paid is applicable on commodities that are marked hazardous to the environment or human health by the UAE government. The following items are subject to this tax:

• Tobacco and tobacco products will be taxed at 100%, including all commodities specified in Schedule 24 of the GCC Common Customs Tariff.
• 100% on energy drinks having caffeine, guarana, ginseng, taurine, and other stimulating ingredients. It could also refer to components that could be used to make an energy drink.
• 50% tax on carbonated beverages with unflavored carbonated water being an exemption. It could also refer to items that could be used to make a carbonated beverage.

Value Added Tax (VAT) for Dubai and UAE

5 percent VAT is applicable in the United Arab Emirates. But some specific products and goods are free from VAT. Chemical disinfectants, textile & medical masks, single-use gloves, antiseptics, and similar personal protective equipment used in the COVID-19 pandemic were exempted by the UAE in 2020. Other services and products subject to a 0% VAT rate are as follows:

• Some education and healthcare services.
• Exports of services and goods outside of the GCC
• Investment-grade precious metals
• International transportation
• Newly constructed residential properties

Value-added tax for companies in Dubai is also 5 %. Voluntary registration is available to businesses with a turnover of AED 187,500 or more. If taxable supplies and imports exceed AED 375,000 per year, businesses must register for VAT.

Refunds of Value Added Tax in the UAE

All tourists, residents, and expats pay VAT when clearing bills at POS (Point of Sale). From November 2018, eligible tourists were allowed to make a request for a refund on goods purchased with VAT. To do so, these conditions must be met:

• The process, as well as the acquisition and export of products, must adhere to the Federal Tax Authority’s standards and procedures.
• The items must be acquired from a store that participates in the Tourist Tax Refund Scheme.
• They must intend to leave the USE within 90 days after receiving the supplies, as well as the purchases.
• The Federal Tax Authority’s Refund Scheme does not exclude goods.
• Within three months of receiving the goods, they must export them out of the UAE.

Tourists can get their refunded amount using a special machine available at seaports, border crossings, and airports. Buyers can use the devices to electronically submit tax invoices of their bought items from outlets that are part of the Refund Scheme, along with copies of their credit card and passport.

Wealth and Property Tax in the UAE

Rental or Municipality Tax

The taxation of rented properties varies between the Emirates, as previously mentioned. Sharjah charges a 2% rental tax to all tenants. In Dubai, commercial tenants are charged 10%, while residential tenants pay 5% rental tax. At the same time, in Abu Dhabi, expats pay 3%, while UAE nationality holders are not taxed on their properties.

Stamp Duty

In the United Arab Emirates, there is no stamp duty.

Transfer Tax

In the United Arab Emirates, there is a tax for transferring property. This changes from Emirate to Emirate. The buyer usually pays the transfer fee, but both the buyer and the seller share the cost of these charges.

Capital Gains Tax

The UAE does not generally tax capital gains unless they come from sales of companies that are subject to banking or income tax.

Conclusion

That was all about different types of taxes in the UAE that residents and foreigners have to pay. Business owners have to clear business tax in Dubai. Want some guidance or expert advice regarding clearing your taxes? You can get in touch with Riz and Mona and we will assist you and get things done for you.