banks-taxes-in-uae

Banks & Taxes in the UAE

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A comprehensive guide about opening a bank account and managing your taxes

When it comes to managing finances in UAE, there is a very simple principle to enjoy: your net income is the same as your gross income in this income-tax free haven. But beware, there are still some fixed costs and a few taxes you may need to take into consideration. Check out our guide to find out more.

When you move to the UAE you will need to open a bank account. There is a large range of banks to choose from, both local and internationally owned, and you’ll only need a proof of residency, a passport, and your visa details.

Once you have your bank account set up, make sure you withdraw some cash from it. Payments in the UAE are still mostly done in dirham, cash in hand. Credit and debit card use is less extensive than in most other international centers and usually a no-go in smaller businesses, such as restaurants or grocery stores. You should have plenty of Dirham to play with though. While there are some corporation taxes and VAT has just been introduced, there is still no income tax in the Emirates.

How to open a bank account in the UAE

  • All financial institutions in the Emirates, including all commercial banks for private customers, are regulated by the Central Bank of the UAE.
  • Though foreign banks have been increasingly opting out of the retail market in the UAE, expats still have a variety of banks to choose from, including international and Islamic banks.
  • Opening a bank account in the UAE fortunately doesn’t require much in the way of paperwork.

The Central Bank of the United Arab Emirates certainly won’t be responsible for handling your individual bank account in the UAE — but it is in charge of the country’s entire banking sector. The successor of the 1973 Currency Board was established in 1980 to manage all the monetary policies of the young nation.

One of the Central Bank’s pivotal functions consists in overseeing, regulating, and developing the banking industry in the UAE. Those duties are mostly carried out by its Banking Supervision and Examination Department. Unlike the head office of the Central Bank, this department isn’t located in Abu Dhabi, the political and administrative capital of the Emirates, but in Dubai, its leading financial hub.

The Central Bank of the UAE issues licenses to all financial institutions (e.g. commercial and investment banks, domestic and foreign banks, moneychangers, financial investment companies, etc.).  It sets standards for the entire industry and keeps an eye on compliance with such regulation. Last but not least, it also liaises with international banking organizations like the World Bank or the International Monetary Fund.

Foreign vs. National Banks: The After-Effects of the Financial Crisis

Expats moving to the Emirates will be mostly interested in commercial banks, also known as retail banks. They provide fundamental financial services to the general public — accept deposits, loan money to individuals and businesses, offer investment products, and so on — and it’s here that you’ll open your bank account in the UAE.

The Central Bank of the UAE provides a list of licensed commercial banks across the country. They list 46 banks and 9 representative branch offices (which don’t offer the usual services of a retail bank), although that figure might be slightly outdated: according to their latest statistical bulletin from February 2016, there are currently 23 national and 26 foreign banks — a total of 49 altogether — active in the Emirates.

Though you have a wide range of places to choose from when it comes to your new bank account in the UAE, expats might take note of the following development: in the past few years, since about 2010, several large international banks, such as Lloyds or Barclays, have completely abandoned their commercial banking services in the UAE. Only a few such banks, especially HSBC Middle East, have consolidated their retail banking business in the region instead.

In the aftermath of the global financial crisis of 2008/2009, these banks have decided to cut down on costs and focus on their core domestic markets, particularly when faced with the lively competition from the many national banks in the Emirates. Due to these local alternatives, though, you definitely won’t have to worry about opening a bank account in the UAE.

Spoiled for Choice? Choosing a Retail Bank in the Emirates

It would probably be the easiest solution for expats to just opt for one of the bigger domestic banks in the Emirates. Retail banks like Emirates NBD have numerous branches throughout the country: in this particular case, there are over 60 NBD branch offices in Dubai and more than a dozen in Abu Dhabi, and the bank is also represented in all other five emirates. Such commercial banks offer all the standard services you’d expect: current accounts and savings accounts, credit and debit cards, mortgages and personal loans, phone, online, and mobile banking, foreign exchange and remittances, etc.

If you are looking for high-quality customer service when getting a bank account in the UAE, you might want to check out the UAE banks identified by the annual benchmarking index for retail banks: Ethos Integrated Solutions, the leading customer experience consultancy in the Middle East, has been publishing a list of recommended commercial banks in the region ever since 2005. In 2015, the overall winner for the best customer service was the Abu Dhabi Islamic Bank. However, their focus on Islamic banking might initially be a little confusing for non-Muslim expatriates.

No Interest in Interest? The Concept of Islamic Banking

If you aren’t a Muslim yourself, you’ll probably be unfamiliar with the concept of Islamic banking. Though not all Muslims agree with that particular interpretation of Islamic theology and law, Islamic finance is a growing sector worldwide.

To put it briefly, Islamic finance forbids investment in practices considered haram (unlawful), such as running a distillery. Furthermore, it also frowns upon charging interest on loans: the respective term riba is often translated as “usury” or “exploitation”. Therefore, many Islamic banks have developed a variety of alternative practices to operate as for-profit businesses nonetheless.

For example, if customers need a large amount of money for an expensive purchase, they won’t take out a regular loan. Instead, the bank will make the purchase for them and sell them the item in question for a higher price. This sum may then be repaid in installments, so the bank still makes a permissible profit on the sale of goods. However, which practices are or are not permitted in Islamic finance is often subject to much debate amongst various scholars and theologians.

A Hassle-Free Part of Expat Life: Opening a New UAE Bank Account

No matter where you decide to open a bank account in the UAE, be it at a foreign or national bank, an Islamic or non-Islamic one, you’ll be glad to hear that the procedure is always pretty easy. Please take note, though, that only residents can have a current account with a local bank. Non-residents can only open savings accounts in the UAE.

Resident expats just need to bring along their original passport and a copy thereof, including of the page with their residence visa for the UAE. They also need a so-called letter of no objection from their visa sponsor and a salary certificate from the HR department of their employer. However, the latter is only necessary if they want to have their salary transferred to their new bank account in the UAE.

For GCC nationals, it’s even less complicated: they just have to show their passport and bring a copy of it, as well as a phone or utility bill as proof of address in the UAE. That’s all it takes for opening a bank account in the UAE!

What is the tax in the UAE?

  • There are no personal income taxes in the UAE, and corporate taxation is rarely enforced.
  • However, customs duties on imports, service charges in the hospitality sector, and taxes on income from property do exist.
  • The Ministry of Finance has announced imminent tax reforms regarding VAT and corporate taxes in the UAE.

The United Arab Emirates is widely known as a tax-free country, which explains its popularity among foreign employees. The prospect of an untaxed salary goes a long way to offset any potential disadvantages of living and working in Dubai, Abu Dhabi, or the other emirates.

Is this reputation as a tax haven completely true? And, more importantly, can the government still afford levying no taxes in the UAE in view of falling oil prices?

A Tax-Free Expat Paradise?

Expats will be glad to hear that there’s indeed no personal income tax in the United Arab Emirates, and there are no plans to change this. If you take up paid employment in Abu Dhabi, Dubai, etc., gross and net income will be roughly the same.

Foreign employees — nationals of other GCC member states not included — aren’t part of the social security system in the Emirates, either. Therefore they pay neither taxes in the UAE nor contribute to public pension or healthcare funding.

In Abu Dhabi and Dubai, though, it’s now mandatory for most companies to enroll expat employees in a private healthcare plan. Insurance premiums are usually deducted directly from monthly salaries.

Moreover, plenty of employers offer company pension plans as a benefit for their foreign staff. You normally contribute 5% of your salary to such funds, but participation is purely voluntary.

When drawing up your household budget for expat life in the UAE, pencil in extra costs for private health insurance for yourself and dependent family members. Also figure in other pension schemes you may be paying into. You can use the lack of income taxes in the UAE to make up for the gaps in social security.

Do talk to a tax advisor in your home country before moving. Just because there are no income taxes in the UAE, you won’t get off scot-free. Your country of origin might tax your worldwide income, or you may have income from property or investment back home.

Talk to a professional about your situation to avoid trouble with the tax authorities. They should also know if your home country is among the circa 60 states that have entered into a tax treaty with the UAE and what this means for you.

What Expat Entrepreneurs Should Know about Corporate Taxation

If you plan on starting your own business in the UAE, read up on corporate taxation and accountancy standards first. So far, there are corporate tax decrees in all emirates, but they are hardly enforced.

Only foreign oil and gas producing companies, as well as foreign banks, are paying corporate taxes in the UAE, ranging from 10% to 55% of their annual income. However, this could soon change — please find more information below.

If you apply for or renew a trade license in the UAE, you may have to pay taxes to the respective municipality issuing the license. And if your company is connected to the import and export sector, you need to pay customs duties on imported goods.

Customs duties are levied at the first point of entry into the Arab Gulf States, as they are regulated throughout the GCC states. They generally amount to 5% of the invoice, but specific products such as tobacco or alcohol may be subject to different rates.

Expat entrepreneurs might be interested in the UAE’s free zones. Most of the several dozen free zones are located in Dubai. They are exempt from various regulations regarding business ownership and taxes in the UAE.

Specific legal frameworks vary from zone to zone. Generally speaking, they don’t levy any customs duties and offer guaranteed exemptions from corporate taxes. Furthermore, 100% foreign ownership of a business is only allowed there.

Further Taxes and Service Charges

At the moment, the UAE doesn’t have any capital gains tax, any estate and gift tax, or any VAT, though the latter might be changing. However, services such as hotels and restaurants pay service charges to the local municipality. In Dubai, for example, this amounts to 10% of the bill for food purchased in restaurants. It is automatically added to the customer’s bill and then paid by the restaurant in question.

Property owners should take note that UAE municipalities may demand taxes on rental income, usually between 5% and 10% of the annual rent. When real estate changes owners, buyer and seller have to split a transfer charge (about 2% of the price) between them.

Don’t Fear the Oncoming Tax Reforms!

Several important changes regarding taxes in the UAE are (probably) imminent. They don’t include personal income tax, so expat employees may only be affected indirectly. The official announcement by the Ministry of Finance from August 2015 regards both VAT and corporate taxes in the UAE.

Firstly, all GCC member states are planning to introduce VAT. The legislation is still under negotiation, and it remains unclear when it will be introduced — perhaps at some point in 2016. The VAT rate is probably going to be 5%. Businesses will have a period of 18 months after the official introduction to implement the changes.

Corporate tax laws may also start being enforced throughout the Emirates. Again, the exact date is of yet unclear. Business will also get a twelve-month period to adjust to the changes in corporate taxation. Moreover, the UAE free zones will still be exempt from this, according to their individual regulations.

InterNations GO!
by InterNations GO!
11 May 2016
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