This blog is to guide you to everything you need to know about taxation in the UAE – from federal taxes to property levies.
Fun fact: The UAE does not have a federal income taxing policy! UAE does not levy income tax on individuals. However, it levies a corporate tax on oil companies and foreign banks. Excise tax is levied on specific goods which are typically harmful to human health or the environment.
Read on to find out more about the taxation system in UAE in detail.
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Tax in UAE
Introduction to the UAE taxation system
The UAE taxation system is full of pleasant surprises. One of those is the absence of federal income tax in the country. This means that if you make a decent salary in the country, you have the privilege to keep all of it without having to give a hefty amount to the government. Amazing, right?
Moreover, UAE did not have any VAT until 2018 either. Value Added Tax was introduced in the UAE at a relatively low rate – 5%. However, this tax comes in addition to an excise tax. This tax is levied by the government on the sale and usage of products that it thinks are harmful to the environment and human health in the long run.
Taxes in the UAE
Tax system for foreigners
There are absolutely no income taxes applicable for any UAE residents, citizens or otherwise. However, if a foreigner is based in the UAE, they may have to bear the income tax of their home country, depending on their taxation policies and rules.
Federal Taxes
Here are some of the federal taxes that are levied on the people of the UAE:
Individual tax
Employed individuals in the UAE who are also GCC nationals, including the UAE, are subject to this tax. This amounts to approximately 17.5% of a social security regime in the region. UAE nationals who are employees have to pay 5% of their salaries as a result of this tax – an amount that is automatically deducted from their salary slip. Their employer, additionally, has to bear 12.5%. The residents of the GCC region are charged with different rates of this tax depending on the cost of social security in their country.
Corporate Tax
This tax is levied only on foreign banks and oil companies in the UAE. There are several free economic zones, however, where businesses of such kinds are exempted from paying this tax. The businesses that are registered in any of these 40 free economic zones are exempted from paying the corporate tax for a specific period determined by the concerned authorities. This period of time may also be extended user certain conditions by the same authorities.
Tourist facility taxes
These are taxes that are levied on the members of the tourism industry in the country. Some of these taxes are:
- City tax – varies from 6% to 10%
- Service Charge 10%
- Rate of the room 10%
- Municipality fee 10%
- Tourism fee 6%
Double taxation
The UAE has several arrangements put into place with other countries of the world so that the several taxes involved in overseas investments may be avoided
Property transfer tax
If people wish to transfer their properties from one person to another, usually by means of selling and buying, the persons involved are eligible for a tax, which is called the property transfer tax. The property transfer tax is usually borne by the buyer of the property rather than the seller.
Goods and Services tax
Value Added Tax (VAT)
The usual rate of Value Added Tax in the UAE is 5%. However, VAT is suspended in the following cases:
- Healthcare and educational services
- Investment-grade precious metals
- International transportation
- Goods and services that operate outside the GCC
- Freshly constructed residential properties
Excise tax
Excise tax, which came into existence in 2017, is an indirect tax that is levied on goods that may be harmful to human health or to the environment at large. This tax, hence, is applicable on the following:
- A 50% tax is levied on carbonated drinks, except for unflavoured carbonated water. This tax is also applied to drinks that are based on carbonated beverages or made from them
- 100% tax is levied on tobacco products
- 100% tax is levied on stimulating substances like caffeine, ginseng, guarana and taurine. This tax is also applicable on commercially made energy drinks
Regional and state taxes
Here are some of the regional and state taxes that are borne by the people of the UAE:
Rental tax
The taxes levied on rentals are different depending on Emirate to Emirate. Usually, residential tenants in Dubai have to pay 5% of their yearly rent as taxes. This amount gets doubled to 10% for commercial rentals. In Abu Dhabi, however, residents are not charged with taxes on their properties. However, expats have to pay a 3% tax in Abu Dhabi.
Free Trade Zones
The UAE has established several economic zones within the country where the system of taxes, customs, import, and export are different. They are made in such a way that they eventually help the growth of the industries in the UAE and make sure that the country gets enough foreign investment. There are approximately 40 such special economic zones across the entire country. The companies that operate within these special corporate zones are exempted from certain taxes, mostly corporate tax, for a period of up to 50 years (which can be extended). They don’t have to pay any import or export taxes to the government either.
Property and Wealth tax in the UAE
- Capital Gains tax
There is no capital gains tax in the UAE.
- Rental or municipality tax
The rental or municipality tax in the United Arab Emirates differs from a different region-to-region. While there is a 5% taxation rate in some Emirates, the figure might jump to 10% in others.
- Inheritance tax
There is no inheritance tax in the United Arab Emirates. In case of an inheritance that has to take place without a will, it is dealt with in accordance with Islamic Shariah principles.
