Social Security & Taxation
Less Hassle with Tax: Taxation 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.
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.