The tax system in the United Arab Emirates
The UAE is generally considered a tax haven for both individuals and businesses. However, it's not exactly tax-free. Foreign banks and oil companies operating in the UAE do need to pay federal taxes. You may also notice that a tax is charged on your hotel or restaurant bill in some emirates.
Moreover, in 2018, the UAE also introduced a Value-Added Tax (VAT), and a corporate tax on businesses' net profits was introduced in 2022.
A favorable tax environment is one of the reasons many foreigners come to the UAE for work or to set up a business. The country also offers a vibrant international environment, professional opportunities in various sectors, and a dynamic urban living environment.
As an expat, you probably won't have too many things to worry about when it comes to taxes in the UAE. However, having a general idea of how taxes work here is still beneficial. Plus, you may still need to handle your tax obligations at home when living in the UAE.
Understanding the tax system in the United Arab Emirates
The UAE's favorable taxation system is one of the biggest draws for many expats to the country. There is no income tax in the UAE — which means employees get to keep all of their salaries. It also makes dealing with taxes in general much easier. If your country has double taxation treaties with the UAE, you won't have to worry about taxes at all: there are no papers to fill out and deadlines to meet. On the other hand, if your home country doesn't have double taxation agreements with the UAE, you will still need to handle taxes at home. Depending on your country of origin, this may be a simplified procedure (since you are residing abroad) or a standard one. In all cases, you should always double-check with the tax authority in your country of citizenship to avoid committing involuntary tax fraud.
Until a couple of years ago, no tax was levied on goods and services in the UAE. However, since 2018, the country has been taxing goods and services. Additionally, some goods are also subject to excise tax — typically, these are the goods that are considered harmful to health or the environment.
Types of taxes in the UAE
State taxes
These taxes are charged (or not) across all emirates in the UAE.
No income tax
There is no income tax in the UAE, so you will enjoy a tax-free salary while earning income from the UAE. That said, you need to check with your home country, as you may have to declare your income on your country's tax returns. Each situation will vary based on the individual and the laws applicable in their country of origin.
Individual tax (social security payments)
GCC nationals (citizens of the member countries of the Gulf Cooperation Council) are members of the social security regime, which requires a contribution of 17.5%. UAE nationals only pay 5% of this contribution, while their employers pay the remaining 12.5%. Non-GCC nationals don't pay any social security taxes in the UAE.
Corporate tax
As per an announcement that was released in January 2022, corporations and businesses in the UAE are subject to a corporate tax from the beginning of their first financial year after June 2023. This tax is levied on the net income or profit of these businesses. The corporate tax rates are currently at 0% for taxable income up to AED 375,000, 9% for taxable income above AED 375,000, and at least 15% for large multinational enterprises.
Some businesses are exempt from this corporate tax, such as those engaged in the extraction of natural resources, dividends, and capital gains earned by a UAE business from its qualifying shareholdings and qualifying intra-group transactions and reorganizations.
Tourist facility tax
Hospitality establishments in the UAE (hotels, resorts, restaurants, etc.) generally charge the following taxes: service charge (10%), city tax (up to 10%), municipality fee (10%), and tourism fee (6%). There is also a 10% tax on the room rate.
Taxes in Free Trade Zones
The UAE has over 40 free trade zones that used to have their own special tax and import regimes that make it easier for business owners to run operations. However, they are now subject to the same corporate taxes as other businesses across the country.
Taxes on goods and services in the UAE
Two primary taxes levied on goods and services in the UAE are Value-Added Tax (VAT) and excise tax.
Value-Added Tax (VAT)
As of January 1st, 2018, VAT has been introduced by the UAE government. The rate of VAT is 5%. This decision by the UAE government aims to boost the country's revenue. VAT is now applied to a few select retail products as well, with a 5% retail sale tax on products purchased in the UAE.
VAT refunds in the UAE
Under certain conditions, as a tourist, you may be able to request VAT refunds in the UAE. To do so, you will need to meet the following criteria:
- The goods you have purchased must be from a retailer taking part in the Tax Refund for Tourists Scheme;
- You must intend to leave the UAE with your purchases within 90 days from the point of sale.
You can typically apply for a VAT refund at specialized facilities located in airports, seaports, and border ports. You will need your receipt, a copy of your passport, and a credit card.
Excise tax
An excise tax, also known as a levy, is imposed on goods such as tobacco, carbonated drinks, and energy drinks. This is usually because these goods are viewed as harmful to the health of the population or to the environment. The goal of this levy is to reduce the consumption of unhealthy and harmful products. The tax rate is 50% on carbonated drinks, 100% on tobacco products, and 100% on energy drinks. If you have started a business in the UAE, you can register for excise tax online via the e-services section on the Federal Tax Authority (FTA) website.
Import and export taxes
Generally, customs duties in the UAE amount to about 5% of the total cost, insurance, and freight value. However, some goods are taxed at a higher rate: alcoholic products are taxed at 50%, and tobacco products are taxed at 100%. Some products are exempt from customs duty.
Taxes on property in the UAE
There are two property-related taxes in the UAE: the property transfer tax and the rental tax.
Property transfer tax
The property transfer tax is levied when you transfer property. The rate for this tax differs from one emirate to another. For instance, in Dubai, it currently stands at 4%.
Rental tax
The rental tax also varies across the emirates. In Dubai, tenants in residential complexes typically pay 5% of their annual rent in rental tax. In Abu Dhabi, on the other hand, UAE nationals are exempt from property tax, while expats do pay rental tax in the amount of 3%.
Good to know:
There is no inheritance tax in the UAE. However, if the deceased doesn't have a will, their property will be inherited in accordance with Islamic Shari'a principles.
UAE taxation for foreigners
As we've already mentioned above, as an expat in the UAE, you won't be required to pay any taxes — regardless of whether you are a UAE resident or not. However, depending on the taxation laws, you may still need to pay income tax in your country of residence on the income earned abroad. In this case, it would be great if your country had a double taxation treaty with the UAE.
Currently, the UAE has double taxation treaties with the following countries:
Albania, Algeria, Andorra, Angola, Antigua and Barbuda, Argentina, Armenia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Belize, Benin, Bermuda, Bosnia and Herzegovina, Botswana, Brazzil, Brunei, Bulgaria, Burkina Faso, Burundi, Cameroon, Canada, Chad, Chile, China, Colombia, Commonwealth of Dominica, Comoro Islands, Costa Rica, Cote D'ivoire, Croatia, Cyprus, Czech Republic, Democratic Republic of the Congo, Ecuador, Egypt, Equatorial Guinea, Estonia, Ethiopia, Fij, Finland, France, Gabon, Gambia, Georgia, Ghana, Guinea, Hong Kong, Hungary, India, Indonesia, Iraq, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Republic of Korea, Kosovo, Kyrgyzstan, Latvia, Lebanon, Liberia, Libya, Liechtenstein, Lithuania, Luxembourg, Macedonia, Magnolia, Malaysia, Maldives, Mali, Malta, Mauritania, Mauritius, Moldova, Monaco, Montenegro, Morocco, Mozambique, the Netherlands, New Zealand, Niger, Nigeria, Pakistan, Palestine, Panama, Paraguay, Philippines, Poland, Portugal, Romania, Russia, Rwanda, Saint Vincent and the Grenadines, San Marino, Saudi Arabia, Senegal, Serbia, Seychelles, Sierra Leone, Singapore, Slovak, Slovenia, South Africa, Sout Sudan, Spain, Sri Lanka, Sudan, Suriname, Switzerland, Syria, Tajikistan, Tanzania, Thailand, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Kingdom, Uruguay, Uzbekistan, Venezuela, Vietnam,Yemen, Zambia and Zimbabwe.
As this list may expand, make sure to check with your Embassy or the UAE Ministry of Finance for updates.
If your country does have double taxation agreements with the UAE, you will probably qualify as a non-resident in your home country and won't have to pay any taxes. The conditions you will need to fulfill to qualify as a non-resident may differ from one country to another. In most cases, however, this will depend on how much time you spend outside your home country within a year. As a non-resident, you won't be required to pay taxes on the income generated outside your home country. With that, if you still have income sources in your home country, you may still be taxed on those.
Good to know:
Note that the United States doesn't have double taxation treaties with the UAE. This means that if you are a US citizen living and working in the UAE, you won't need to pay any taxes locally — but will still need to pay taxes in the United States. Fortunately, in most cases, you will only be required to pay expat taxes in the US.
Additional taxes you will be paying in the UAE include taxes on goods and services that we've mentioned above. Here are some of the most common “extras” you will need to pay:
- Housing/rental fees (Dubai) — this is a fee of 5% of your total annual rent value. It is split over 12 months as paid as part of your monthly DEWA (Dubai Electricity and Water Authority) bill;
- Hotel fee (Dubai) — you will also pay this fee in restaurants that are located in hotels. The rate is 10% of your total bill;
- Tax on tobacco (100%), energy drinks (100%), carbonated beverages (50%), and alcohol (30% in Dubai);
- Knowledge and Innovation fees — these are typically paid when using government services, for instance, when applying for a driver's license, visa, etc., and amount to AED 10 each;
- Departure fee (when flying out from an airport in Dubai) — this fee applies to anyone flying out of Dubai (regardless of destination). It is charged in the amount of AED 75. This is usually charged as part of your airline ticket cost.
As you can see from the above, while the UAE does offer very favorable tax conditions for its residents, it is not a fully tax-free space. A better way to describe it would be to say that the country has no personal taxes.
A combination of favorable tax conditions and simplified options for long-term residence visas continue to make this region an attractive destination for both life and work.
Useful links:
FTA registration guide for excise tax
