The tax system in the UAE is full of surprises. From income tax and tax-free zones for businesses to property taxes and VAT – find out more.
A fun fact about the tax system in the United Arab Emirates: There is no state income tax. Despite this huge tax advantage, you shouldn’t pack your bags and think you’ll get away scot-free – not yet. We show you which taxes you have to pay as a private individual or as a company in the United Arab Emirates.
The tax system in the United Arab Emirates – or rather, the lack of taxes – is one of the main attractions for many expats in the region. For example, there is no income tax for employees and no system for corporate and inheritance taxes, to name but a few.
There was also no VAT until January 2018. This tax on goods and services sold was set at a relatively low rate of 5%. There is also an excise tax that is levied on certain products that the government classifies as harmful to health or the environment, such as energy drinks and tobacco products.
General taxes
Below is an overview of the most important general taxes in Dubai.
Income tax
No income tax is levied in the UAE. Therefore, an income tax return is not required in the UAE, as there is no income tax in the country. This also applies to freelancers and self-employed persons who are resident in the Emirates.
Individual tax
Employees in the UAE who are nationals of the Gulf Cooperation Council (which includes the UAE) are subject to a social security scheme of 17.5%. Those who are UAE nationals pay 5% (with an automatic deduction from their paycheck) and the employer pays the other 12.5%. The social security obligation also applies to employees of companies and branches registered in a Free Trade Zone (FTZ). In addition, residents of other GCC states may be subject to different social security contributions than in their home country. Conversely, non-GCC nationals are not subject to social security contributions in the United Arab Emirates.
Corporate income tax
Corporate taxes in the UAE are only levied on oil companies and foreign banks. However, there are 45 free zones in the country; companies registered in the UAE are exempt from tax liability for a renewable period. There is no tax on capital gains unless the company is subject to another income tax.
The corporate tax regulations are set to change from June 1, 2023. It is then planned to introduce a federal corporate income tax of 9% for companies with a net profit of AED 375,000 or more.
Double taxation
The United Arab Emirates is expanding its network of double tax treaties (DTAs) and bilateral investment treaties (BITs) to promote strategic global partnerships. The UAE has concluded approximately 193 DTAs and BITs to exempt or reduce direct and indirect taxes on investments and profits.
Tax on tourist facilities
Restaurants, hotels and resorts (among others) may charge the following taxes:
- 10% off the room rate
- Service fee (10%)
- Municipal levy (10%)
- City tax (6-10%)
- Tourism tax (6%)
- Real estate transfer tax
- Real estate transfer tax is levied on the transfer of real estate in the UAE. It varies depending on the emirate; in Dubai, for example, it is 4%. Although both the buyer and the seller bear the burden, the buyer usually pays the transfer tax.
Inheritance tax
There is no regulation for inheritance tax. However, if there is no will, the inheritance is regulated according to the principles of Islamic Sharia law.
Regional taxes
There are regional differences in tax rates in the UAE and Dubai. The most well-known exception is the free trade zone.
Free trade zones
There are free zones in the UAE that have special tax, customs and import regulations. In fact, there are more than 40 zones throughout the Emirates. In these special zones, companies can be exempt from corporate tax for up to 50 years and they have 100% exemptions on import and export taxes.
Tourism fees per emirate
Hotel fees vary depending on the emirate. In Dubai, there is a tourism fee of AED 7 to 20 per room per night (for up to 30 nights). This generally depends on the category of the hotel. Abu Dhabi also levies a 4% charge on the hotel bill and charges AED 15 per night per room. Hotels in Ras Al Khaimah also charge a tourism fee of AED 15 per room per night.
Rent tax
Taxes on rented properties vary from one emirate to another. In Dubai, residential tenants pay 5% of their annual rent as rental tax, while commercial tenants have to pay 10%. In Abu Dhabi, UAE nationals do not have to pay taxes on their properties, but their foreign fellow citizens pay 3%. In Sharjah, all tenants pay a rental tax of 2%.
Taxes on goods and services (VAT)
There are two taxes on goods and services in the United Arab Emirates: VAT and excise duty.
VALUE ADDED TAX
The VAT rate in the UAE is 5%. However, certain items are exempt from VAT. In 2020, the UAE exempted from VAT some personal protective equipment used during the COVID-19 pandemic, such as medical and textile masks, disposable gloves, chemical disinfectants and antiseptics. Other goods and services to which a 0% VAT rate applies are
Exports, goods and services to countries outside the GCC
International transportation
Investment-grade precious metals
Newly built residential properties
Some education and healthcare services.
Excise duty
The UAE has been introducing an excise tax since 2017. This is an indirect tax levied on goods that the government considers to be harmful to human health or the environment. The goods to which this tax applies are:
50% on carbonated drinks (with the exception of unflavored water). It can also be levied on goods that can form the basis of a carbonated drink.
100% on energy drinks containing stimulating substances such as caffeine, taurine, ginseng and guarana. It may also apply to products that may form the basis of an energy drink.
100% on tobacco and tobacco products, including all items listed in Schedule 24 of the GCC Common Customs Tariff.
Refund of value added tax
Tourists, emigrants and residents pay VAT at the point of sale. Since November 2018, eligible tourists have been able to apply for refunds for goods purchased with VAT. These conditions must be met to do so:
The goods must have been purchased from a retailer that participates in the tax refund scheme for tourists.
The goods are not excluded from the refund scheme of the Federal Tax Authority.
You must intend to leave the UAE with the purchases within 90 days of delivery.
You must export the goods from the UAE within three months of delivery.
The process and the purchase and export of goods must be carried out in accordance with the requirements and procedures laid down by the Federal Tax Authority.
Tourists can receive their refunds via a special device that can be found at airports, seaports and border ports. The devices allow consumers to electronically submit the tax invoices for their purchases at the points of sale registered in the refund system together with copies of their passport and credit card.
The tax system for foreigners
There is no income tax in the UAE for those who work in the UAE, regardless of their residency status. However, those who are not tax resident in the UAE may still have to pay income tax depending on the tax laws of their country of residence.
The UAE has concluded double taxation agreements with around 137 countries, including:
Algeria, Armenia, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Czech Republic, Egypt, Estonia, Finland, France, Georgia, Germany, India, Indonesia, Ireland, Italy, Kazakhstan, Republic of Korea, Latvia, Lebanon, Luxembourg, Malaysia, Malta, Mauritius, Montenegro, Morocco, Czech Republic and Belarus, Montenegro, Morocco, Mozambique, New Zealand, Netherlands, Pakistan, Panama, Philippines, Poland, Portugal, Romania, Serbia, Seychelles, Singapore, Spain, Sri Lanka, Sudan, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, Uzbekistan, Venezuela, Vietnam and Yemen.
Further details on these agreements can be found on the website of the Ministry of Finance.
Residents of the UAE are not subject to taxes on international pension plans.
The UAE has signed up to the Common Reporting Standard (CRS), the global standard for the automatic exchange of information (AEOI) system. The CRS is a legal standard that enables countries to exchange tax data between participants. This can be useful, for example, in the investigation of tax evasion.
Taxes on real estate and assets
The following tax rates apply to real estate and assets.
Capital gains tax
Generally, there is no capital gains tax in the UAE unless it is derived from the sale of a business that is subject to income tax or bank tax.
Transfer tax
A transfer tax is levied on the transfer of real estate in the UAE. This varies depending on the emirate (in Dubai, for example, it is 4%). Although both the buyer and the seller bear the burden, the buyer usually pays the transfer tax.
Municipal/rental tax
As already mentioned, taxes on rented properties vary between the Emirates.
Residential tenants in Dubai pay 5% of their annual rent as rental tax, while commercial tenants are charged 10%. In Abu Dhabi, UAE citizens do not have to pay taxes on their properties, but their foreign fellow citizens pay 3%. In Sharjah, too, all tenants pay a rental tax of 2%.
Stamp duty
There is no stamp duty in the United Arab Emirates.
Inheritance tax
There is no inheritance tax in the UAE. In cases where the deceased has not left a will, the inheritance is regulated according to the principles of Islamic Sharia, regardless of the nationality of the deceased.
Corporate taxes and VAT rates
Most companies in the UAE do not pay corporate tax. Theoretically, most emirates can levy a corporate tax of up to 55% – but this only applies to foreign oil companies and branches of foreign banks.
Consumption tax for companies
Companies must register for excise duty if they are involved:
- The import of excise goods
- The production of excise goods for consumption in the UAE
- The storage of excise goods in the UAE (sometimes)
- The supervision of an excise warehouse or a designated zone
Companies can register for excise duty on the FTA website in the “E-Services” section.
Value added tax for companies
The VAT rate in the UAE is 5%. Companies must register for VAT if their taxable supplies and imports exceed AED 375,000 per year. Companies that reach a threshold of AED 187,500 can register voluntarily. In general, companies registered for VAT must:
- charge VAT on the taxable goods supplied by them;
- Reclaim VAT on all goods and services they have purchased;
- Keep records for government purposes.
Foreign companies can reclaim VAT in the United Arab Emirates.
Import and export taxes in the UAE
Just as in the EU, there are customs duties and taxes to be paid on the import of goods and merchandise in the UAE and accordingly also in Dubai.
Customs duties
Customs duties of 5% of the CIF (Cost, Insurance, and Freight) value are levied on most goods. Some categories are exempt from customs duties. Alcohol is subject to a duty rate of 50%, while tobacco products are subject to a duty rate of 100%.
In addition, a value added tax of 5% is levied on gasoline.
Tax advice in the UAE
Since there is no income tax in the UAE, many people do not need to hire a tax advisor – there is no need to fill out an income tax form.
For larger companies, however, it is important to obtain independent financial advice on the company’s tax liability.
Summary
Dubai is often referred to internationally as a tax haven and in practice this is true. There are of course some taxes in detail, but the most important taxes such as those on income, capital gains, dividends or company profits are 0%.
