The tax system in the United Arab Emirates is full of surprises. This guide tells you everything you need to know; from the quirky lack of income tax and the special business tax-free zones to property levies and VAT.
Fun fact about the tax system in the United Arab Emirates: there’s no federal income tax. However, in spite of this enormous fiscal advantage, you shouldn’t start packing your bags, thinking you’re getting away scot-free – just yet. This guide details which taxes you will still have to pay as an individual or as a business while residing in the United Arab Emirates.
The guide includes the following information:
- The tax system in the United Arab Emirates
- Federal taxes in the UAE
- State/regional taxes in the UAE
- Taxes on goods and services (VAT) in the UAE
- UAE tax system for foreigners
- Tax on property and wealth in the UAE
- Inheritance tax in the UAE
- Company taxes and VAT rates in the UAE
- Import and export taxes in the UAE
- Tax advice in the UAE
- Useful resources
The tax system in the United Arab Emirates
The tax system in the United Arab Emirates – or rather, the lack of taxes paid – is one of the main draws to the region for many expats. There is no income tax paid by employees, and no system for corporate and inheritance taxes, among other.
Until January 2018, there was also no VAT. The tax on goods and services sold was introduced relatively low, at 5% – but with the addition of an excise tax that is levied on specific products deemed by the government to be harmful to human health or the environment.
Federal taxes in the UAE
The UAE does not levy a tax on income. There is therefore no need for an income tax return in the UAE as there is no applicable individual tax within the country. The same applies to freelancers and self-employed individuals resident of the Emirates.
Employees in the UAE who are GCC nationals (this includes the UAE) are subject to a social security regime of 17.5%. Those who are UAE nationals pay 5% (automatically deducted off their paycheck) and the employer pays the further 12.5%. Those who are resident of other GCC nations may be subject to different social security contributions relative to their home country.
Corporate taxes are only levied on oil companies and foreign banks in the UAE however, there are over forty free zones in the country and businesses registered here are exempt from paying tax for a period that can be extended. There are no capital gains taxes unless the company is taxable under other income tax.
The United Arab Emirates has 94 agreements in place with other countries to avoid double taxation on overseas investments.
Tourist facility tax
Restaurants, hotels and resorts (among others) may charge the following taxes:
- 10% on the room rate
- 10% service charge
- 10% municipality fee
- City tax (6-10%)
- 6% tourism fee
Property transfer tax
A transfer charge is applied to the transfer of property in the UAE. This varies by Emirate (it is 4% in Dubai). Although the buyer and seller both share the burden of this, the buyer generally pays the transfer fee.
There is no regime for inheritance tax. If there is no will, inheritance is dealt with according to Islamic Shari’a principles.
State/regional taxes in the UAE
Free trade zones
There are free-trade zones in the UAE which have special tax, customs, and import regimes which are governed within themselves. There are over 40 zones throughout all the Emirates. Within these special areas, companies can be exempt from paying corporate tax for up to 50 years and they have 100% exceptions on import and export taxes.
Tourism fees per Emirate
Hotel charges vary by Emirate. In Dubai, there is a ‘Tourism Dirham Fee’ per room for each night of occupancy (for up to 30 nights) that ranges from AED 7 to AED20. This often depends on the grade of the hotel. Abu Dhabi charges an additional 4% fee onto hotel bill and charges AED 15 per night, per room. Ras Al Khaimah hotels also charge a tourism fee per room per night of AED 15.
Taxes on rented properties vary between the Emirates. In Dubai, residential tenants pay 5% of their annual rent in rental tax, while 10% is added onto commercial tenants. However, in Abu Dhabi, UAE citizens are not taxed on their properties, but their expat counterparts pay 3%. In Sharjah, all tenants pay a rental tax of 2%.
Taxes on goods and services (VAT) in the UAE
There are two taxes on goods and services in the United Arab Emirates: VAT and an excise duty.
The VAT rate of the UAE is 5%. It is charged at 0% for:
- Exports and goods and services to outside the GCC
- International transportation
- Investment grade precious metals
- Newly constructed residential properties
- Some education and healthcare services
The excise tax was introduced in 2017. It is an indirect tax that is levied on goods which are deemed to be harmful to human health or the environment. Goods to which this tax applies are:
- 50% on carbonated drinks (except for unflavored carbonated water). It may also be added to items which can be the basis of a carbonated beverage;
- 100% on energy drinks that contain stimulating substances which include caffeine, taurine, ginseng and guarana. It may also be added to items which can be the basis of an energy drink;
- 100% on tobacco and tobacco products to include all items listed within Schedule 24 of the GCC Common Customs Tariff.
Refunds of VAT in the UAE
VAT is charged at the point of sale, so tourists, expats, and residents all pay. Since 18 November 2018, eligible tourists have been able to request refunds on goods purchased with VAT. To do so, they fulfil these conditions:
- Goods must be purchased from a retailer participating in the ‘Tax Refund for Tourists Scheme’;
- Goods aren’t excluded from the Refund Scheme of the Federal Tax Authority;
- They must have the intention of leaving the USE within 90 days of supply along with the purchases;
- They must export the goods out of the UAE within three months of supply;
- The process and purchase and export of goods must be carried out according to the requirements and procedures determined by the Federal Tax Authority.
Tourists can submit tax invoices for their purchase from outlets registered in the scheme along with copies of their passport and credit card.
UAE tax system for foreigners
The UAE does not have any income tax for those working in the UAE, regardless of their residency status. Those who are not tax residents of the UAE may still have to pay income tax in their country of residency depending on their own taxation laws.
The UAE has double tax treaties with the following nations:
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, 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, Yemen
Further details on these treaties may be found on the Ministry of Finance.
There are no taxes levied to UAE residents on international pension plans.
The UAE has signed up to the Common Reporting Standard (CRS), which is the global standard for Automatic Exchange of Information (AEOI) system. CRS is a legal standard allowing countries to exchange tax data between participants. This is useful for example to investigate tax evasion.
Tax on property and wealth in the UAE
Capital gains tax
Generally, there is no capital gains tax in the UAE, unless they are derived from the sales of a company that is liable to pay income tax or banking tax.
A transfer charge is applied to the transfer of property in the UAE. This varies by Emirate (it is 4% in Dubai) and although the buyer and seller both share the burden of this, the buyer generally pays the transfer fee.
As previously mentioned, taxes on rented properties vary between the Emirates. Residential tenants in Dubai pay 5% of their annual rent in rental tax, while 10% is added onto commercial tenants. Meanwhile, in Abu Dhabi, UAE citizens are not taxed on their properties, but their expat counterparts pay 3%. In Sharjah, all tenants pay a rental tax of 2%.
There is no stamp duty in the United Arab Emirates.
Inheritance tax in the UAE
There is no inheritance tax in the UAE. For cases where the deceased did not leave a will, inheritance is dealt with according to Islamic Shari’a principles, regardless of the nationality of the deceased.
Company taxes and VAT rates in the UAE
Most businesses in the UAE pay no corporation tax. In theory, most emirates are able to impose a corporate tax up to 55% – but this is only applied to foreign oil companies and branches of foreign banks.
Excise tax for businesses
Businesses must register for excise tax if they partake in:
- The import of excise goods into the UAE;
- The production of excise goods to be consumed in the UAE;
- Stockpiling of excise goods in the UAE (sometimes);
- Those overseeing an excise warehouse or designated zone
VAT for businesses
VAT is 5% for the UAE. Businesses must register for VAT if their taxable supplies and imports exceed AED 375,000. Businesses may join the register voluntarily if they do not meet the AED 375,000 limit – if they meet a threshold of AED 187,500. Generally, VAT-registered businesses must:
- Charge VAT on the taxable goods they supply;
- Reclaim VAT on any business goods and services they purchase;
- Keep records for government purposes
Foreign businesses may recover VAT costs while in the United Arab Emirates.
Import and export taxes in the UAE
For most items, customs duties are calculated at 5% of the Cost, Insurance and Freight (CIF) value. Some categories are exempt and alcohol has a 50% duty, while tobacco products have a 100% customs duty added.
VAT is applied at 5% to gasoline.
Tax advice in the UAE
As there is no income tax in the UAE, many people will not need to hire an accountant – there’s no income tax form to fill.
For those with larger businesses, it is still important to seek independent financial advice on business tax liabilities.
Resources that will help with taxation in the United Arab Emirates: