Dubai is a popular destination for expats across the globe, not just for the opportunities it promises but also for the lure of living a ‘tax-free’ life. The United Arab Emirates or Dubai for that matter is largely a tax free country with a massive tax advantages for those who live and work here. But there are a few circumstances in which you will be required to pay taxation of some form. To add more to this, the UAE has also signed a number of Double Taxation Avoidance Agreement (DTAA) with countries to ensure that the individuals do not get stuck paying tax to two different governments on income earned in one country.
A company is considered to be tax resident in Dubai (United Arab Emirates) if it is incorporated in the UAE and provided that it can establish that:
Individuals living in Dubai and the United Arab Emirates are not subject to income tax. There also is no tax on rental income, capital gains, inheritance, or property transfer. However, here is the list of taxes that are calculated in Dubai.
The UAE does not have a system of federal income taxation. Most of the Emirates constituting the UAE have their own corporate income tax decrees that provide for tax to be imposed on the taxable income from business activities that are carried out in the relevant Emirates at rates of up to 55%. Although the Decrees continue to apply and allow for corporate tax to be levied on all companies, in practice, tax is only enforced on foreign oil companies engaged in upstream petroleum activities and branches of foreign bank.
There are no withholding taxes in the UAE that would apply to payments such as royalties, interest or dividends etc. made by UAE entities to another entity or person (resident or non-resident).
The implementation of GCC Customs Union is still in progress. The GCC member states apply a Common Customs Law and a Unified Customs Tariff with a standard customs duty rate of 5% of goods’ cost, insurance and freight value, except for tobacco, alcohol and goods subject to a customs duty rate of 0%. The GCC Customs Law does not levy export customs duties.
Most of the Emirates in the UAE impose municipality tax on properties, mostly called as annual rental value. It is generally the tenant’s obligation to pay the tax; however, the tenant’s employer will typically pay the tax on behalf of the employee. In some cases, separate fees are payable by both tenants and property owners. For example, in the Emirate of Dubai, it is currently imposed at 5% of the annual rental value for tenants or at 5% of the specified rental index for property owners.
Most Emirates impose a hotel tax of 5% to 10% on the value of hotel services and entertainment. In addition, there may be tourist fees/charges of up to 10% levied for practice of certain tourist/entertainment activities (e.g. events and shows). These levies are imposed and administered differently by each Emirate.
VAT in the UAE applies on the supply of a broad base of goods and services, as well as the importation of goods, with some very limited exceptions. It is oversee by the Federal Tax Authority (FTA). The standard rate on VAT in Dubai is 5% and certain supplies of goods and services are zero-rated or exempt from VAT.
There are more than 30 free trade zones established in Dubai, each of which is controlled by the particular free zone authority. Companies who start their business in a Dubai free zone have their share of advantages when it comes to taxation. Dubai International Financial Center, Jebel Ali Free Zone, Dubai Healthcare City, Dubai Internet City, Dubai Multi Commodities Center, Dubai Cars and Automobile Zone, Dubai Gold and Diamond Park, Dubai Studio City, International Media Production Zone, and Dubai Biotechnology and Research Park are quite representative and significant free trade zones with zero taxes on incomes, therefore no corporate tax imposed. Thus, in the same way every free zone in Dubai and the UAE has benefits depending on the business activity.
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