UAE is known for its favorable tax policies. It makes it an attractive destination for both individuals and businesses. It has now become 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 system in the UAE, focusing on the 0% 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 taxation system in the UAE, providing you with a comprehensive understanding of the country’s tax environment.

Individual – Taxes in UAE

Individuals get as such no taxes on incomes. So, here it is zero income tax. But for tourists, some individual taxes apply. Let us discuss what taxes individuals in the UAE pay:

Income tax in UAE

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.

Furthermore, the UAE government does not impose taxes on interest, dividends, wealth, luxury, inheritance, gifts, or capital gains.

Tourist tax in UAE

Visitors from abroad who are on tourist visas may encounter various taxes and fees when staying at top hotels in Dubai and eating from restaurants in the UAE. These can include the following:

• A 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. The tax is not even charged in Ras Al Khaimah.
• 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.

Companies – Taxes in UAE

UAE introduced new tax rules in 2023. Now there is approximately 9% corporate tax in the UAE. Taxes for companies in the UAE vary according to the business trade license type and its business activities. It can be summarized as follows:

Corporate tax in UAE

• The UAE introduced corporate tax last year 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%.

Value Added Tax (VAT) in UAE

• 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 in UAE

• 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.

UAE imports and exports tax

• 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%.
• 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. The UAE has a significant number of Free Zones, with 45 and counting, with the majority located in Dubai.

Dividends and capital gains

There are no taxes imposed on dividends, capital gains, intragroup transactions, and reorganizations in the UAE.

How can you qualify as a UAE tax resident?

In UAE, foreigners with UAE residence visas 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.

How to obtain a Tax Residence Certificate (TRC)?

To confirm your tax status and obtain a tax residence certificate in the UAE, here are the steps needs to be followed:

1. Obtain a residence visa and reside in the UAE for at least 180 days.

2. Rent or purchase a property in the UAE.

3. Fill out an application with the Federal Tax Authority (FTA).

4. Prepare the required documents, including:

• Copy of your original passport.
• Copy of your UAE residence visa.
• Copy of the long-term rental contract or property purchase contract.
• Income proof, 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.

5. 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 in the UAE

Tax exemptions for companies in the UAE vary depending on the location and type of business activities that you will conduct for your business setup in UAE. Here are some common tax exemptions for entities in the UAE:

1. UAE free zones

UAE free zones 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 with less turnover of 375,000 AED annually.
• No personal income tax on shareholders and employees.
• No import or export taxes within the free zones.
• 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.
• 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, as outside the free zones, where a local partner may be required.

2. Value Added Tax (VAT)

Certain sectors or activities may qualify for VAT exemptions in the UAE. Some of the examples of these particular business activities and sectors include:

• Healthcare and related services.
• Education and training.
• Local passenger transport services.
• Some financial services.
• Residential properties (sale or lease).
• Bare land.

3. Capital gains

The UAE does not currently impose a specific capital gains tax on companies or individuals. Capital gains are generally not subject to tax.

4. Dividends and interest income tax

Dividends and interest income earned by companies in the UAE are typically not subject to income tax.

5. Intragroup transactions

In UAE, there are no taxes imposed on intragroup transactions and reorganizations. Companies can undertake these activities without tax implications.

Property tax in UAE

In terms of property taxes or the real estate tax system in UAE, there are a few minor taxes that we need to consider before investing, selling, or buying property in UAE. The tax related to real estate transactions include:

Property transfer tax in UAE

When you are selling or buying a property in Dubai, whether residential or commercial, a one-time fee you need to pay. It is known as the property transfer fee.

• The fee is calculated 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 property rental tax is automatically added to the bill.

• For tenants living in residential properties in Dubai, the tax is 5% of the rent.
• In Abu Dhabi, the rental tax is approximately 3%.
• In Sharjah, it is 2% and is the lowest as compared to Dubai and Abu Dhabi.

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. It may vary in other Emirates within the UAE.

Dubai tax system: Benefits

The Dubai tax system offers several benefits to residents and businesses in Dubai or anywhere in the UAE. Some of the key advantages are:

• No inheritance tax, with only a transfer fee required for real estate inheriting.
• Low rental tax for tenants with 2% to 5%.
• No corporate tax for most businesses, if their turnover is less than 375,000 AED (102,112.50 USD), except for oil companies and foreign banks.
• Exemption from social security contributions for expatriates.
• 0% personal income tax allowing you to keep all your money.
• 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 and 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 the UAE. If you are running a business here in UAE, you should contact corporate tax advisors as they will help you to figure out how things will work right for you. For your company, you must adhere to the rules and regulations. You have to maintain your financial records for VAT and corporate tax purposes.

Here at Emirates Business Setup, we provide tax and VAT services, and you can get a free initial consultation. We assist our clients in obtaining tax exemptions, reducing corporate tax liabilities, and managing their company’s financial records.

FAQs

1. What is the tax system in the United Arab Emirates?

The tax system in the United Arab Emirates is known for its favorable conditions. UAE does not impose income tax on individuals. UAE has 5% Value Added Tax (VAT) and corporate tax of 0 to 9%.

2. Are there any taxes in Dubai?

Yes, in addition to the VAT, there is also a tax system in Dubai that includes corporate tax, excise tax, property transfer tax, and other taxes.

3. What is the tax rate in the UAE?

The tax rate varies for different types of taxes in the UAE. For example, the VAT rate is 5%. The corporate tax rate is starting from 0% to 9%, according to the annual net profit. 

4. Do individuals in the UAE have to pay income tax?

No, individuals in the UAE are not subject to income tax on their personal income. It is zero percent across the UAE. 

5. What is the deadline for filing a tax return in the UAE?

The deadline for filing tax returns in the UAE is usually around June 2023, but it’s advisable to check with the Federal Tax Authority for the exact date.

6. Are Americans living in the UAE subject to any special taxation rules?

Americans living in the UAE may have to consider their US tax obligations. Meanwhile, they also need to follow the tax system in the UAE.