Apart from the incredible skyscrapers, golden beaches, and countless tourist destinations to explore, UAE has one of the most liberal tax policies in the world. Many people consider the UAE to be the financial and commercial hub of the Middle East and coupled with the attractive tax policies make the country an alluring option for individuals and businesses alike.
So it shouldn’t come as a surprise that the UAE draws visitors from all over the world due to its robust economy and infrastructure that supports higher standards of living.
But before you get your things together and buy a ticket to the country for employment or to set up a business, you must acquaint yourself with some types of taxes in UAE that residents and businesses have to pay.
In this article, we discuss the various taxes levied on goods and services and the tax rates that must be paid by consumers.
Keep reading to find out more about them.
What are the different kinds of taxes in UAE?
The UAE government provides funding for important infrastructure, public parks, markets, and healthcare facilities. The government chose to introduce various taxes to lessen the reliance of the nation’s revenue stream on hydrocarbons in order to offer its citizens a better standard of living.
Corporate tax UAE, Value Added Tax, Income Tax UAE, and Property Tax are some of the taxes in UAE. Now let’s examine these taxes in detail and their impact on individuals and businesses.
a) Individual Tax UAE
A UAE residence visa enables one to legitimately minimise their taxes by setting themselves up as a tax-paying resident in the country.
Income Tax UAE. Individuals, including residents and citizens, do not pay any income tax at all. They are also excluded from paying taxes on capital gains, dividends, wealth, luxury, inheritance, and gifts.
While, for instance, in Portugal, the tax rate on pensions earned from abroad is 10 to 48%. While foreigners with residency visas are exempt from paying pension tax in the UAE.
Tourist fees. In the UAE, tourists pay taxes on lodging, dining, and hotels. A number of taxes and levies applicable to a tourist are as follows:
Hotel tax – 10%
Service fee – 10%
Municipal tax – 0-10%
City tax – 6-10%
Tourist fee – 6%
Different emirates may have different tax rates. For instance, a municipal tax is 10% in Ajman or Sharjah, 7% in Dubai, and 0% in Ras Al Khaimah.
Dubai is the most visited emirate in the nation, with 5.1 million tourists between January and April 2022. Visitors staying in hotels across the city have to pay an extra charge known as the “tourism dirham,” which can range from AED 7 to 20 per night, depending on the hotel’s star rating and room category.
In a 4-star hotel, a one-bedroom room will cost you AED 15, while a 5-star hotel would charge you AED 20.
How can a person become a tax resident of the UAE?
A foreigner who has a residency visa for the UAE is automatically a tax resident. Such individuals do not need to receive their tax identification number. However, if one’s primary nation and the UAE have a double tax treaty and they wish to avoid double taxes, they must acquire a Taxation Residence Certificate.
Here’s what you must do to determine your tax status:
1. Obtain a residence visa and spend at least 180 days in the UAE.
2. Purchase or rent a home in the UAE.
3. Complete a Federal Tax Authority application.
Availing of a Taxation Residence Certificate requires the following documents:
1. A passport photocopy.
2. A copy of the UAE residence permit.
3. A copy of the property purchase contract or long-term rental agreement.
4. Proof of income, such as a pay stub or pension statement.
5. Bank statement for the last six months.
6. Proof that the applicant has really lived in the United Arab Emirates for at least 180 days. You can get the same through the Federal Authority for Identity and Citizenship or the General Directorate of Residency and Foreigners Affairs.
The applicant must choose a start date for a financial year, specify the nation from which they want to get a Taxation Residence Certificate, attach copies of the required documentation, and pay an AED 1,000 application cost when submitting the application to the FTA.
Upon successful submission of the application, the individual will receive the Taxation Residence Certificate within the next three days. The individual can download the Tax Identification Number from the website.
For verification of a UAE citizen’s status as a tax resident in another nation, the Taxation Residence Certificate and Tax Identification Number are more than sufficient.
b) Corporate Tax UAE
A 9% corporate tax will be implemented in the UAE from June 2023. It will be applicable to businesses with annual revenue greater than AED 375,000 ($102,000). Corporate tax UAE for the majority of businesses is currently 0%.
In the oil and gas industry, foreign corporations pay a corporate tax rate of 55%. Bank branches of foreign financial institutions pay 20% as taxes in UAE. However, dividends, capital gains, intragroup transactions, and reorganisations are all tax-free.
VAT. In the UAE, the Value-Added Tax is 5%. VAT is compulsory for businesses making more than AED 375,000. A business must register with the FTA as a VAT payer in order to pay this tax.
Registration is voluntary for businesses making between AED 187,500 and AED 375,000.
Businesses typically pay VAT once every three months, and within 28 days of the end of the tax period. For some taxpayers, the Federal Tax Authority may, however, designate different tax periods.
Excise Tax. Products that the UAE government deems to be hazardous to the environment or human health are subject to an excise tax. The tax is calculated as a percentage of the retail price minus excise tax and VAT or the price of the product fixed by FTA – or whichever is greater.
The list of goods and their tax rates as approved by the UAE Cabinet:
Carbonated beverages, excluding plain soda – 50%
All products with sugar or sweeteners – 50%
Tobacco products – 100%
Energy drinks – 100%
E-cigarettes – 100%
Companies that produce, import, or possess excise goods must pay the excise tax. These businesses must register with the FTA as excise taxpayers. The actual tax is paid every three months and within 15 days of the end of the tax period.
Export and import duties Depending on the type of products being imported, the import tax may change. However, it is typically 5% of the value of imports after freight and insurance (CIF). Importing harmful goods, such as alcohol and tobacco, will attract a 50–100% tax.
Companies need not pay any import tax for goods brought into Free Zones prior to their sale on the local market.
Corporate Tax exemptions in the UAE
To reduce their tax liability, investors and business owners register their companies in the UAE. The Free Zones, which have unique tax and customs regimes, offer the most advantageous conditions for businesses.
Benefits for businesses in the UAE Free Zones:
1. Following firm incorporation, there is no corporate tax for 15–50 years.
2. No VAT
3. No customs fee.
4. In the UAE, there is 0% tax on income from international firms and the same can be freely withdrawn from bank accounts by both individuals and businesses.
Currently, there are 45 Free Zones in the UAE with a majority of them located in Dubai. The full list is as follows:
Abu Dhabi Airport Free Zone (ADAFZ)
Abu Dhabi Global Markets (ADGM)
Khalifa and Industrial Zone Abu Dhabi (KIZAD)
Industrial City of Abu Dhabi
Higher Corporation for Specialized Economic Zones
Masdar City Free Zone
Dubai Airport Free Zone
Dubai Auto Zone
Dubai Cars and Automotive Zone
Dubai Design District
Dubai Flower Centre
Dubai Gold and Diamond Park
Dubai Healthcare City
Dubai Industrial City
Dubai International Academic City
Dubai International Financial Centre
Dubai Internet City
Dubai Knowledge Park
Dubai Logistics City
Dubai Maritime City Authority
Dubai Media City
Dubai Multi Commodities Centre
Dubai Outsource Zone
Dubai Science Park
Dubai Silicon Oasis
Dubai Studio City
Dubai Techno Park (New name: National Industries Complex)
Dubai Textile City
Energy and Environment Park
International Humanitarian City
Jebel Ali Free Zone Authority
Jumeirah Lakes Towers Free Zone
Dubai Production City
Hamriyah Free Zone
Sharjah Airport International Free Zone
U.S.A. Regional Trade Center (USARTC) Free Zone
Sharjah Media City (SHAMS)
Ajman Free Zone
Ras Al Khaimah
RAK Investment Authority Free Zone
Ras Al Khaimah Free Trade Zone
Ras Al Khaimah Media Free Zone
RAK Maritime City
Fujairah Free Zone
Creative City Fujairah
Umm Al Quwain
Umm Al Quwain Free Trade Zone (UAQFTZ)
How can a business obtain tax residence in the UAE?
A business is automatically regarded as a tax resident once it is registered in the UAE. However, it is only feasible to file for a Taxation Residence Certificate after one year of registration. To validate the UAE’s tax residency in another nation and prevent double taxes, this certificate is a must.
The company’s owners must submit an FTA application and pay AED 1,750 as registration fees.
Documents required for businesses to get the Taxation Residence Certificate include:
1. The enclosed list of founders and shareholders and the trade licence.
2. Foundation Contract.
3. The owners, partners, and managing directors of the company must present a copy of their passports, identification cards, and resident visas.
4. A financial statement for the certificate’s year, prepared or verified by an authorised UAE audit firm.
5. The latest six months’ worth of corporate account statements from a UAE bank.
6. A contract for the business property’s rental or acquisition.
The applicant must indicate the nation for which they want a Taxation Residence Certificate and select the start date for a financial year when submitting an application to the FTA.
Do note that offshore organisations cannot obtain a UAE Taxation Residence Certificate.
c) Property Taxes in UAE
A Transfer Fee and a Registration Fee are two types of taxes that a buyer must pay when purchasing a real estate property in the UAE. Different emirates have different Transfer Fee rates. For instance, the property tax in Abu Dhabi is 2%, compared to 4% in Dubai. The buyer and seller often split this amount evenly.
Along with the Transfer fee, the parties must also pay an administrative fee of AED 540, or $147. The property buyer is responsible for the payment of the registration fees. The registration fee depends on the cost of the property which is as follows:
AED 2,000 ($545) for properties under 500,000 AED ($137,000).
AED 4,000 ($1,090) for properties valued at more than 500,000 AED ($137,000).
The new owner should obtain an ownership certificate following the purchase. AED 250, or $68 is the fee to obtain this certificate. The new owner pays an additional 5% VAT when purchasing a commercial property.
Fees and Taxes in UAE for property owners. Property owners in the UAE are exempt from yearly taxes. The owners should also make a yearly payment for the property’s upkeep. Various public infrastructures such as playgrounds for kids, sports facilities, and other community places are built using this money. The property developer determines this charge which typically varies between $15 and $60 per square metre. Even if owners rent out their property, they are still responsible for paying maintenance fees.
In most cases, the seller of real estate pays 50% of the transfer fee, which is typically 2% in Dubai and 1% in Abu Dhabi.
Tenants are responsible for paying both utility bills and municipal rental tax. The charge for the tax is automatically added. In Dubai, the tax for tenants is 5% of the rent; in Abu Dhabi, it is 3%; and in Sharjah, it is 2%. When renting a commercial property, the renters must pay a 10% municipal tax.
In the United Arab Emirates, gifts and inheritance are tax-free.
How does one become a resident of the UAE?
Investors from all over the world come to the UAE to invest in real estate and start businesses because of the favourable tax laws in the country. Some of them also acquire two or ten-year residence permits.
If an investor purchases real estate worth at least AED 750,000 (about $204,000), they are eligible for a 2-year residence visa. Investors who spend at least AED 2 million ($545,000) on real estate can avail 10-year Golden Visa. By holding onto the property, the investor can extend their visa as many times as they’d like.
|Conditions||Residence Visa||Golden Visa|
|Validity time||2 years||10 years|
Single Owner: AED 750,000
Co-ownership: AED 1,000,000
Flats, apartments, hotel rooms, villas, warehouses, offices
Not possible to purchase land
|Mortgage||With an initial investment of 50%|
With a UAE residence visa, you can create bank accounts in dirhams, dollars, or euros and minimise your tax burden. Additionally, an investor and their family can take advantage of the UAE’s state-of-the-art healthcare system and send their kids to international schools and colleges.
With the introduction of corporate tax UAE, a major change seems possible in the tax and compliance costs of most businesses operating in the country. Entities must be compliant with the new tax regime and this requires accurate identification of tax implications. The same holds true when it comes to income tax UAE. It is therefore imperative that businesses and individuals must evaluate the impact of various taxes in UAE and proactively plan for a smooth life in the country.
How Nair & Nelliyatt Chartered Accountants can help?
Taxes in UAE can be confusing, but it doesn’t have to be. As one of the leading accounting and auditing firms in Dubai and the UAE, we are well-equipped to help you with various types of taxes like income tax UAE, property tax, VAT, and corporate tax UAE. Most importantly, you can count on our team of qualified professionals to constantly deliver the best services that are in line with your expectations.
Reach out to us at email@example.com or +97143577678 today.