Tax in the United Arab Emirates

tax in the UAE
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Updated 2021-11-12 10:46

The UAE is generally looked at as 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 there is a tax charged on your hotel or restaurant bill in some emirates.  

When it comes to goods, alcohol is heavily taxed in the country. Moreover, in 2018, the UAE also introduced Value Added Tax (VAT).

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, it's still beneficial to have a general idea of the way taxes work here. Plus, you may still need to handle your tax obligations at home when living in the UAE.

Here's your mini-guide to taxes in the United Arab Emirates.

The tax system in the United Arab Emirates

The UAE's favorable taxation system is one of the biggest draws to the country for many expats. There is no income or corporate tax in the UAE — which means employees get to keep all of their salaries and businesses all of their profits. 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 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, this is something 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.

State taxes in the UAE

These taxes are charged (or not) across all emirates in the UAE.

No income tax

There is no income tax in the UAE. You will, therefore, enjoy the benefits of 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

The majority of companies in the UAE don't need to pay corporate tax. In fact, corporate tax is only levied on oil companies and foreign banks. If you have a business in the United Arab Emirates, you are advised to check with the Federal Tax Authority for the rules and regulations when it is running within the free zones. Businesses registered in these areas are exempt from corporate tax for a given amount of time, which can be extended.

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.

Regional taxes in the UAE

There are areas in the UAE that have even more favorable tax conditions — especially for businesses. These areas are called free trade zones. Free trade zones are set up to offer tax concessions and customs benefits to expats opening businesses in the area.

Taxes in Free Trade Zones

The UAE has over 40 free trade zones that have their own special tax and import regimes that make it easier for business owners to run operations. In these areas, all companies are exempt from paying corporate tax for a period of as long as 50 years.

Taxes on goods and services in the UAE

There are two primary taxes levied on goods and services in the UAE. These include Value Added Tax (VAT) and excise tax.

Value Added Tax (VAT)

As of January 1st, 2018, value-added tax (VAT) has been introduced by the UAE government. The rate of Value Added Tax is 5%. This decision from the UAE government aims at boosting 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, alcohol, or fast food. 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 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 amount of 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, keep in mind that if the deceased doesn't have a will, their property will be inherited in accordance with the 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, you may still need to pay income tax in your country of residence on the income earned abroad, depending on the taxation laws. 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:

Algeria, Armenia, Austria, Azerbaijan, Belarus, 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, Mozambique, the Netherlands, New Zealand, 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.

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 fulfil 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.
  • 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 35.

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 or corporate taxes.

A combination of favorable tax conditions, simplifies company setup and options for long term residence visas continue to make this region an attractive destination for both life and work.

Useful links:

Ministry of Finance UAE

FTA registration guide for excise tax

UAE double taxation agreements

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