The tax system in the UAE

One of the most well-known facts about living and working in the United Arab Emirates is that there’s no federal income tax. Taxes in the UAE are pretty simple overall, with flat rates for both value-added and corporate taxes. However, there are still some details you might need to be aware of depending on whether you’re an individual employee or setting up your own business while residing in the UAE.

The article includes the following information:

The tax system in the UAE

The tax system in the United Arab Emirates – or rather, the lack of taxes – is one of the main draws to the region for many expats. One of the biggest benefits is that those living and working in the UAE do not have to pay income tax.

In January 2018, the UAE introduced value-added tax (VAT) at a relatively low rate of 5%. There’s also an excise tax levied on specific products the government deems harmful to human health or the environment.

The UAE government introduced a corporate income tax rate in June 2023. Your business’s eligibility depends on its profits for the tax year.

For corporate tax purposes, the tax year in the UAE runs from 1 January to 31 December or 1 June to 31 May, depending on how your business is set up.

Who pays tax in the UAE?

All tourists, residents, and citizens temporarily or permanently residing in the UAE are liable to pay some form of tax. The taxes you have to pay and in what amounts depend on your immigration status.

How does tax work for expats?

In terms of tax agreements that benefit expats, the UAE is expanding its Double Taxation Agreements (DTA) and Bilateral Investments Treaties (BIT) network to encourage strategic global partnerships. The UAE has secured approximately 193 DTAs and BITs with the purpose of exempting or reducing taxes on investments and profits from direct and indirect taxes.

The UAE has also signed up to the Common Reporting Standard (CRS), which is the global standard for the Automatic Exchange of Information (AEOI) system. Essentially, CRS is a legal standard allowing countries to exchange tax data between participants.

Do I need a tax ID number in the UAE?

As there is no tax on personal income in the UAE, you won’t need an individual tax number. However, businesses require a corporate tax registration number, and they must register for VAT. You can carry out both of these processes through the Federal Tax Authority.

If you require a number to avoid double taxation, you can apply for a tax residency certificate (TRC).

Types of tax in the UAE

Income tax

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 also applies to freelancers and self-employed workers who are residents of the Emirates.

Municipal/property tax

In the UAE, municipal taxes vary by Emirate but are generally based on property value and are the tenants’ responsibility to pay.

In Dubai, for example, the municipal tax is 5% of a property’s annual rental value, whether residential or commercial.

Corporate tax

On 1 June 2023, the UAE introduced a flat rate corporate tax (CT) of 9% for businesses with net profits of AED 375,000 or more. There are exemptions for small businesses, self-employed individuals, and investors. To determine whether your business qualifies, see the UAE Ministry of Finance website.

People running businesses that fall under the new rules must register with the Federal Tax Authority and submit tax returns on an annual basis. A grace period is in operation from 1 January 2024 to 31 March 2025, during which time businesses can correct issues with their tax returns without facing penalties.

If your business has a financial year running from 1 June to 31 May, your first corporate tax return is due 28 February 2025. With a financial year from 1 January to 31 December, your tax return due date is 30 September 2025.

Value-added tax (VAT)

The VAT rate of the UAE is 5%. However, certain items are excluded from VAT, such as:

• Export of goods and services to outside the GCC
• International transportation
• Investment-grade precious metals
• Newly constructed residential properties
• Some education and healthcare services

Both tourists and residents pay VAT when making a purchase in the UAE. However, tourists can request refunds on VAT upon leaving the UAE as long as they are still in possession of the goods and they were purchased from a participating retailer.

Tourists can receive their refunds through a special device found at airports, seaports, and border ports across the UAE. At these service points, consumers electronically submit tax invoices for their purchases from the outlets registered in the Refund Scheme, along with copies of their passport and payment card.

For businesses

All businesses earning above the legal threshold of AED 375,000 per year must register for VAT. Businesses may voluntarily register for VAT if their annual profits are above AED 187,500.

Businesses have 28 days after the end of their tax year to file their VAT returns and make any necessary payments to the FTA.

Excise tax

Separate from VAT, excise tax is levied on goods that the government considers harmful to human health or the environment. Excise tax is applied at these rates to the following products:

Type of product	Excise tax rate
Carbonated drinks, except unflavored sparkling water	50%
Food and drink with added sugar	50%
Energy drinks	100%
Tobacco and electronic cigarette products	100%

Inheritance tax

There is no federal regime for inheritance tax in the UAE. However, in the absence of a will, handling of the inheritance depends on whether or not the deceased was Muslim.

For non-Muslim expats, the UAE may apply the inheritance laws of the person’s home country instead. For Muslims, the inheritance will be divided according to Islamic Sharia law.

Payroll tax

Employees in the UAE who are Gulf Corporation Council (GCC) nationals (this includes the UAE) are subject to a social security regime of 20%. Those who are UAE nationals pay 5% (with an automatic deduction from their paycheck), the employer pays the further 12.5%, and the government 2.5%. A higher total rate of 26% is in place in Abu Dhabi.

Social security obligations also apply to employees of companies and branches registered in a free trade zone (FTZ). Also, residents of other GCC nations may be subject to different social security contributions relative to their home country. Conversely, non-GCC nationals are not subject to social security in the United Arab Emirates.

Tax avoidance and evasion in the UAE

If you are considered a taxable person in the UAE, you will need to adhere to the rules around reporting relevant taxes.

Tax investigations are becoming more commonplace for companies operating in the UAE. In 2023, the Federal Tax Authority conducted 39,470 tax inspections, up 81% year-on-year. The investigations uncovered 4,390 violations.

If you wish to report possible tax evasion or violations, the UAE runs a whistleblower program called Raqeeb for this exact purpose. The FTA offers rewards for those who give tips that result in successful investigations.

Tax fines and penalties

Tax evasion is a very serious crime in the UAE that carries an average of seven years in prison and hefty fines. Financial penalties are more likely for minor offenses with the maximum penalty being five times the amount of evaded tax.

Tax advice in the UAE

As there is no income tax in the UAE, many people don’t need to hire an accountant – there’s no income tax form to fill. However, tax advice can help with corporate taxes and registering your business for VAT.

For more information, check out Expatica’s directory listing of accountants in the UAE and find tax advice for your specific situation.

Useful resources

• Federal Tax Authority – the government agency that regulates taxes in the UAE
• Double taxation agreements – the UAE’s double taxation agreements with other countries
• VAT refunds for tourists – how to get VAT refunds when leaving the UAE
• PwC tax report on the UAE – PricewaterhouseCoopers’ tax profile on the UAE