Taxation in UAE - All You Need to Know

One fun fact when it comes to the tax system in UAE is no federal income tax! However, despite this economical fiscal perk, you should not yet start packing up your bags thinking that you can get away with no tax. This guide will help in detailing the taxes that one still has to bear as an individual or as a business while residing in the Gulf Country.

The UAE Tax System

UAE’s tax system, or rather, the lack of taxes paid or any tax details showing up in one’s salary slip, is one of the main reasons that attracts many of the expats to this region. The employees are not required to pay any income tax, and there is no system for inheritance and corporate taxes, among much more.

Until January of the year 2018, there wasn’t any VAT either. This Value Added Tax that is levied on the sale and supply of the goods and services was introduced at a comparatively low percentage i.e., 5% - but comes with an addition of an excise tax. This is a tax that is levied by the government on some products that are considered to be harmful to the environment or to human health.

Federal Taxes in the United Arab Emirates

Following are the various federal taxes explained in the Gulf Country:

Income Tax

There is no tax on income levied in the UAE. Therefore, there is no need for a return on the income tax in the Gulf Country because there is no applicable tax within the region. The same is applicable for those who are either self-employed or are freelancers and are residing within the UAE.

Corporate Tax

The corporate taxes in the UAE are only applicable to foreign banks and oil companies. However, there are more than 40 free zones in the region and the businesses that are registered within these zones are exempted from paying tax for a specific period that can be further extended. There are no taxes on capital gains unless the business is taxable under any other income tax.

Individual Tax

Employed individuals in the UAE who are also GCC nationals (including UAE) are subject to 17.5% of a social security regime. The employees that are UAE nationals have to pay 5% which is automatically deducted and reflected in their salary slip and further the 12.5% is born by the employer. The residents of the GCC region may be charged with different contributions as social security basis in their home country.

Double Taxation

The UAE has about 94 arrangements set in place with the other countries so that any double taxation on overseas investment plans can be avoided.

Tourist Facility Tax

The various hotels, resorts, and restaurants, among others, may charge some of the following taxes:

• 10% on the rate of the room
• Service charge worth 10%
• Municipality fee around 10%
• City tax that can vary from 6% to 10%
• Tourism fee roughly about 6%

Inheritance Tax

There is no set rule for inheritance tax. The inheritance is dealt as per the Islamic Shariah principles in the absence of a will.

Property Transfer Tax

There is a transfer charge that is applicable to the transfer of property in the Gulf country. This varies from one Emirate to another. Although the burden of this is shared by both the seller and the buyer, generally, the transfer fee is paid by the buyer.

Regional or State Taxes in UAE

Following are the various state or regional taxes explained in the Gulf Country:

Free Trade Zones

There are several free trade zones in the Gulf country that have special customs, tax, and import rules within themselves. Across the various Emirates, there are more than 40 zones. The companies, within these special zones, can be exempted from being levied any corporate tax for a period of up to 50 years and they also have a 100% exception on export and import taxes.

Tourism Fee for the Different Emirates

The charges of hotels may vary from one Emirate to another. There is a fee in the form of a Tourism Fee that is levied per room for every night of the occupancy and it can range between AED 7 and AED 20, depending on the grade of the hotel. Hotels in Ras Al Khaimah charge a tourism fee of AED 15 per room for every night. Abu Dhabi also charges an additional 4% fee on the hotel bills and also charges AED 15 for every night per room.

Rental Tax

The taxes levied on the rented properties differ across the various Emirates. The residential tenants in Dubai have to pay 5% of their yearly rent in the form of rental tax, while there is 10% added on the commercial tenants. However, in Abu Dhabi, the residents are not charged any tax on their properties, but the expats residents have to pay a 3% tax. Whereas, in the Emirate of Sharjah, all the tenants are required to pay 2% in the form of rental tax. 

Taxes on Goods and Services in the UAE

There are 2 types of taxes in UAE that are levied on the goods and services namely VAT and excise duty.

Value Added Tax (VAT)

The rate of VAT charged is 5% in the UAE. However, it is 0% for the following:

• Goods and services and exports that are for outside the GCC
• International transportation
• Freshly constructed properties that are residential
• Investment-grade precious metals
• Some of the healthcare and education services

Excise Tax

The excise tax came into existence in the year of 2017 and is an indirect tax charged on the goods that are considered to be of harm to human health or the environment. This tax is applicable to the following goods:

• 50% is levied on carbonated drinks, except for the carbonated water that is unflavored. It may also be levied on the products that can be the basis of a carbonated drink.
• 100% is levied on the energy drinks that have stimulating substances inclusive of caffeine, ginseng, guarana, and taurine. It also might be applicable to items that can be the basis of an energy drink.
• 100% is levied on tobacco along with all tobacco products in order to include all of the items that are listed in the GCC Common Customer Tariff’s Schedule 24.

Refund for UAE’s VAT

VAT is levied at the point of sale so it is paid by all – the tourists, residents, and expats. Since the November 18^th of 2018, the tourists are allowed to request for refunds on the goods that they have purchased inclusive of VAT. There are certain conditions that need to be met, they are:

• The goods must be bought from a retailer that is part of the Scheme for Tax Refund for Tourists.
• The goods should not be excluded from the Scheme for Refund of the FTA.
• They should be having the intention of leaving within 90 days of supply with the goods bought from the USE.
• They must exports the products out of the Gulf region within 3 months of the supply.
• The purchase and process and export of products should be carried out based on the procedures and requirements set by the FTA.

 Upon meeting these, the tourists can submit the tax invoices for all the products purchased from the particular outlets that are registered in the scheme with the copies of their credit card and passport.

The Tax System in UAE for Foreigners

There is no income tax applicable for the residents of UAE, regardless of the residency status they hold. However, if someone is not a tax resident in UAE he or she might still have to bear the income tax of their residence home country depending on the respective taxation rules.

Property and Wealth Tax in UAE

Following are the various wealth and property taxes explained in the Gulf Country:

Capital Gains Tax

In general, there is no tax on the capital gains in UAE, unless the capital gains are derived from a business’ sales, that is liable to pay banking or income tax.

Property Transfer Tax

There is a transfer charge that is applicable to the transfer of property in the Gulf country. This varies from one Emirate to another. Although the burden of this is shared by both the seller and the buyer, generally, the transfer fee is paid by the buyer.

Rental or Municipality Tax

As mentioned previously there is a different tax for every Emirate. The residential tenants in Dubai have to pay 5% of their yearly rent in the form of rental tax, while there is 10% added on the commercial tenants. In Abu Dhabi, the residents are not charged any tax on their properties, but the expats residents have to pay a 3% tax. In Sharjah, all the tenants are required to pay 2% in the form of rental tax. 

Stamp Duty

There is no stamp duty applicable in the United Arab Emirates.

Inheritance Tax

There is no set rule for inheritance tax. The inheritance is dealt as per the Islamic Shariah principles in the absence of a will.

Company Taxes and VAT in the UAE

Most of the businesses existing in the UAE do not have to pay any corporation tax. In theory, most of the Emirates are able to levy a corporate tax that ranges up to 55% but is only applicable to foreign banks and oil corporations.

Excise Tax

The companies must register for this tax if they take part in the following:

• Excise goods’ import into UAE
• Excise goods’ production that is too be consumed in the Gulf country
• Excise goods’ stockpiling in the Emirates (sometimes)
• The companies overseeing a designated zone or an excise warehouse

VAT

The VAT rate is 5% for the Emirates. Companies must register for the Value Added Tax if their taxable supplies along with imports exceed the value of AED 375,000. The companies may register voluntarily if they are unable to meet the amount of AED 375,000 but they meet a benchmark of AED 187,500.

Generally, the businesses having VAT must:

• Charge the VAT rate on their taxable supply of goods
• Reclaim the VAT charges on any of the business goods and services purchased by them
• Keep records for the purposes of the government.

The foreign businesses in the UAE may recover the VAT costs incurred while they are in the UAE.

Export and Import Taxes in UAE

Following are the export and import taxes explained in the Gulf Country:

Custom Duties

For most of the items, the customs duties are calculated as 5% of the CIF - cost, insurance, and freight value. Some categories are exempted from this and alcohol has a duty worth 50%, while tobacco items have 100% duties added. VAT worth 5% is applied to gasoline.

To Further Conclude

Since there is no applicable income tax in the Gulf country, there is no need to hire a professional by many individuals. For those having large businesses, it is still vital to get some independent financial advice on the tax liabilities of that particular business.