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 ex-pats. For instance, there is no income tax paid by employees, and no system for corporate and inheritance taxes, among others.

Until January 2018, there was also no VAT. This tax on goods and services sold was introduced relatively low, at 5%. There’s also an excise tax that is levied on specific products deemed by the government to be harmful to human health or the environment, such as energy drinks and tobacco.

Federal taxes 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 individuals who are residents of the Emirates.

Individual tax

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% (with an automatic deduction off their paycheck) and the employer pays the further 12.5%. 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.

Corporate tax

Corporate taxes are only levied on oil companies and foreign banks in the UAE. However, there are 45 free zones in the country; businesses registered in the United Arab Emirates are exempt from paying tax for a period that can be extended. There are no capital gains taxes unless the company is taxable under another income tax.

Corporate tax rules are due to change from 1 June 2023, when the plan is to introduce a federal corporation tax at 9% for businesses with net profits of AED 375,000 or more.

Double taxation

The United Arab Emirates 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.

Tourist facility tax

Restaurants, hotels, and resorts (among others) may charge the following taxes:

• 10% on the room rate
• Service charge (10%)
• Municipality fee (10%)
• City tax (6–10%)
• Tourism fee (6%)

Property transfer tax

A transfer charge applies to the transfer of property in the UAE. This varies by Emirate; it is 4% in Dubai, for example. Although the buyer and seller both share the burden of this, the buyer generally pays the transfer fee.

Inheritance tax

There is no regime for inheritance tax. If there is no will, however, inheritance is dealt with according to Islamic Shari’a principles.

Regional taxes in the UAE

Free trade zones

There are free-trade zones in the UAE that have special tax, customs, and import regimes within themselves. In fact, there are more than 40 zones throughout 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 AED 20. In general, this depends on the grade of the hotel. Additionally, Abu Dhabi charges a 4% fee onto hotel bills and charges AED 15 per night, per room. Ras Al Khaimah hotels also charge a tourism fee per room per night of AED 15.

Rental tax

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 ex-pat counterparts pay 3%. Furthermore, in Sharjah, all tenants pay a rental tax of 2%.

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