The United Arab Emirates (UAE) is renowned for its favorable tax policies, making it an attractive destination for both individuals and businesses. It’s now recognized as a global business hub. Over 200 nationalities are doing their business here in UAE. The reason behind this is all because of the tax rules and exemptions.
In this blog post, we will explore the tax landscape in the UAE, focusing on the absence of income tax for individuals and the unique corporate tax regulations. Additionally, we’ll also discuss the notable taxation framework for businesses involved in the sale of products considered harmful by the UAE government, such as tobacco, energy drinks, soda, and sugar-containing products.
Join us as we uncover the nuances of taxation in the UAE, providing you with a comprehensive understanding of the country’s tax environment.
UAE Taxes for Individuals
Individuals get as such no taxes on incomes. So, here it is zero income tax. But for tourists, there are some individual taxes applied. Let us discuss what taxes are necessarily required on individuals in the UAE:
Income Taxes
Individuals, both citizens and residents of the United Arab Emirates (UAE) are not required to pay any income taxes. This means that they do not have to contribute a portion of their earnings to the government in the form of income tax.
Additionally, there are no taxes imposed on interest, dividends, wealth, luxury, inheritance, gifts, or capital gains.
Tourist Taxes
Visitors from abroad that are on tourist visas may encounter various taxes and fees when staying at resorts, hotels, and restaurants in the UAE. These can include the following:
- Hotel tax which typically set at 10% of the total bill amount.
- The Service fee is usually around 10% of the bill.
- Municipal tax varies between 0% and 10% across different emirates. For example, Ajman or Sharjah may have a municipal tax rate of 10%, while Dubai imposes a 7% tax. In Ras Al Khaimah, this tax is not even charged so it varies.
- The city tax ranges from 6% to 10% depending on the emirate.
- The tourist fee is set at 6% of the bill.
It is important to note that tax rates can vary between emirates within the UAE.
Taxes for Companies in the UAE
UAE introduced new tax rules in 2023. Now there is approximately 9% corporate tax in UAE. Taxes for companies in the UAE vary according to the license type and its business activities. It can be summarized as follows:
Corporate Tax
- This year in June, corporate tax in UAE is introduced at a rate of 9%.
- The tax will apply to companies earning more than AED 3,75000 per year.
- Most companies previously in the UAE, have not paid corporate tax and were enjoying a 0% rate but now it depends on the nature of the business and types of business activities.
- However, foreign companies in the oil and gas sector are subject to a corporate tax rate of 55%.
Dividends, Capital Gains, and Intragroup Transactions:
There are no taxes imposed on dividends, capital gains, intragroup transactions, and reorganizations in the UAE.
Value Added Tax (VAT)
- VAT is applicable in the UAE and is typically paid quarterly.
- The payment deadline is within 28 days after the end of each tax period.
- Some taxpayers may have different tax periods appointed by the Federal Tax Authority (FTA).
Excise Tax
- Excise tax is levied on products considered harmful to human health or the environment.
- The tax is calculated as a percentage of the retail price minus excise tax and VAT, or based on the price set by the FTA, whichever is higher.
- Excise tax rates for specific products are determined by the UAE Cabinet.
- Companies involved in manufacturing, importing, or storing excise products must register with the Federal Tax Authority as excise taxpayers.
- Excise tax payments are made every quarter within 15 days after the end of each tax period.
Import and Export Taxes
- The import tax in the UAE is generally 5% of the cost, freight, and insurance value of imports (CIF).
- Certain products, such as tobacco or alcohol, may have higher import taxes of 50-100%.
- Some goods, including most national products of the Greater Arab Free Trade Area, are imported tax-free.
- Import taxes are exempt for goods imported into Free Zones until they are transferred to the local market.
- The export tax rate in the UAE is 0%.
- Tax exemptions for companies are particularly advantageous in Free Zones, which offer special tax and customs regimes. Some benefits of Free Zones in the UAE include:
- No corporate tax for 15-50 years after company registration.
- No VAT (Value Added Tax).
- No customs fee.
- Revenue generated from international businesses is not subject to taxes in the UAE and can be freely withdrawn from bank accounts.
- Investors can retain 100% ownership of their companies in Free Zones, unlike outside Free Zones where a local partner may be required.
The UAE has a significant number of Free Zones, with 45 and counting, with the majority located in Dubai.
How is an individual qualified as a UAE tax resident?
An individual who becomes tax resident in the UAE as foreigners with UAE residence visas are automatically considered tax residents. So, they are already qualified as UAE tax residents. They do not need to obtain a separate tax identification number for this purpose.
However, if an individual wants to avoid double taxation and their home country has a double tax treaty with the UAE, they may need to obtain a Taxation Residence Certificate.
Steps to obtain a taxation residence certificate:
To confirm your tax status and obtain a taxation residence certificate, here are the steps:
- Obtain a residence visa and reside in the UAE for at least 180 days.
- Rent or purchase a property in the UAE.
- Fill out an application with the Federal Tax Authority (FTA).
- Prepare the required documents, including:
- Copy of your passport.
- Copy of your UAE residence visa.
- Copy of the long-term rental contract or property purchase contract.
- Confirmation of income, such as salary or pension statements.
- Bank account statements from UAE for the past 6 months.
- Confirmation of residing in the UAE for at least 180 days, obtained from the General Directorate of Residency and Foreigners Affairs (GDFRA) or the Federal Tax Authority for Identity and Citizenship.
- Apply to the Federal Tax Authority, specifying the desired country for the Taxation Residence Certificate, selecting a start date for the financial year, attaching copies of the required documents, and paying an AED 1,000 fee.
The Taxation Residence Certificate is typically issued within three days. Along with the certificate, a Tax Identification Number (TIN) is automatically provided.
The Taxation Residence Certificate and TIN serve as sufficient evidence of tax residency status in the UAE when dealing with tax authorities in other countries.
Tax Exemptions for Companies in the UAE
Tax exemptions for companies in the UAE vary depending on the location and type of business. Here are some common tax exemptions available to companies in the UAE:
Free Zone Tax Exemptions
Free Zones in the UAE offer favorable tax incentives to attract businesses. Companies or any businesses established in Free Zones can benefit from the following tax exemptions:
- No corporate tax for a specific period, typically ranging from 15 to 50 years after company registration.
- No personal income tax on shareholders and employees.
- No import or export taxes within the Free Zone.
- No customs duties on goods imported into the Free Zone.
- No restrictions on the repatriation of capital and profits.
- Some Free Zones also offer exemptions from VAT and other local taxes.
Value Added Tax (VAT) Exemptions
Certain sectors or activities may qualify for VAT exemptions in the UAE.
Examples include:
- Healthcare and related services.
- Education and training.
- Local passenger transport services.
- Some financial services.
- Residential properties (sale or lease).
- Bare land.
Capital Gains Tax Exemptions
The UAE does not currently impose a specific capital gains tax on companies or individuals. Capital gains are generally not subject to tax.
Dividends and Interest Income Tax Exemptions
Dividends and interest income earned by companies in the UAE are typically not subject to income tax.
Intragroup Transactions and Reorganizations:
There are no taxes imposed on intragroup transactions and reorganizations in the UAE. Companies can undertake these activities without tax implications.
Property Tax in UAE:
In terms of property taxes in the UAE, there are a few minor taxes related to real estate transactions:
Property Transfer Tax in UAE:
When purchasing or selling a property in Dubai, whether residential or commercial, there is a one-time fee known as the property transfer fee.
- This fee is calculated usually as 4% of the contract sales-purchase price of the property.
- It is payable to the land department on the day of the property ownership transfer.
- It splits equally between the buyer and the seller.
Property Rental Tax in UAE:
The municipal rental tax in the UAE is paid by the tenants, along with utility bills.
The tax is automatically added to the bill.
The tenants pay a 10% municipal tax when renting a commercial property.
It’s important to note that these property taxes are specific to Dubai and may vary in other Emirates within the UAE. Additionally, there is no annual property tax levied on property owners in the UAE.
Benefits of the Dubai Tax System
The Dubai tax system offers several benefits to residents and businesses. Some of the key advantages are:
- No rental tax or annual apartment tax, providing cost savings for residents.
- No inheritance tax, with only a transfer fee required for real estate inheriting.
- No income or corporate tax for most businesses, except for oil companies and foreign banks.
- Exemption from social security contributions for expatriates.
- Approximately 40 free economic zones offering 100% exemption from import and export taxes.
- Agreements on the avoidance of double taxation with nearly 140 countries, promote international trade and investment.
- Online availability of tax services, including VAT refunds, tax residence certificates, and import/export tariff calculation.
Consult with Emirates Business Setup
It’s important to note that tax regulations may be subject to change, and specific exemptions may have certain conditions and limitations. It is advisable to consult with property tax advisors and property tax consultants when buying, renting, or selling your property in UAE. For your company, you should contact corporate tax advisors. As they will help you to figure out how things will work right for you.
Here at Emirates Business Setup, we provide tax and VAT services, and you can get a free initial consultation. We will provide proper assistance with the most up-to-date and accurate information regarding tax exemptions according to your specific business circumstances.