Taxation in the UAE: An Overview of the Emirates’ Business-Friendly Tax System

When it comes to business in the UAE, there is no denying that one of the biggest draws for investors and entrepreneurs is the country's taxation system. So whether you are considering a business setup in Dubai or simply want to learn more about taxation in the UAE, keep reading for an overview of the Emirates' business-friendly tax system.

1. There is no personal income tax.

One of the most significant benefits of the UAE taxation system is that there is no personal income tax. In other words, employees don't have to pay any taxes on the income that they receive. This significantly boosts the amount of your paycheck and decreases necessary paperwork, as you don't have to complete an income tax return or any reporting obligations.

Moreover, there is no personal income tax for individuals who are self-employed and/or freelancers. Also, the UAE does not levy an income tax on anyone working in the UAE, regardless of their residency status. However, keep in mind that if you are not a tax resident of the UAE, you may still have to pay income tax in your country of residence.

2. There is no corporate tax at the Federal level.

There is also no corporate tax levied on businesses and organizations registered in the UAE apart from oil companies and foreign banks at the federal level. However, some individual Emirates have a limited corporate tax on enterprises.

There is an Excise Tax levied for certain goods that are considered harmful to human health or the environment. These goods include carbonated and energy drinks, tobacco and tobacco products, and electronic smoking devices and tools. Therefore, businesses must register for excise tax if they import excise goods into the UAE or produce excise goods to be consumed in the UAE.

In the free zones of the UAE, businesses are exempt from paying tax for an extended period (between 15 to 50 years) while also benefiting from no capital gains taxes. In addition, in these 40+ free zones, organizations also have 100% exceptions on import and export taxes.

For businesses, the UAE also has formed a vast tax treaty network that includes over 115 double taxation treaties with other countries worldwide. The purpose of these treaties is to eliminate double taxation and expedite the exchange of tax information.

3. A Value Added Tax (VAT) has recently been implemented.

As of 2018, a Value Added Tax (VAT) was introduced on the majority of goods and services. Currently, VAT is set at 5% and is imposed on goods or services at each step of the supply chain. As a result, consumers bear the cost of this new tax at the point of sale.

It is crucial for businesses to set up systems to carefully document business income, costs, and associated VAT charges as they will be responsible for paying the required VAT to the government.

The purpose of introducing VAT is to provide the UAE with a new and reliable source of income to be spent on improving public services. In addition, this income source helps the government shift its dependence on oil and other hydrocarbons as a primary source of revenue.

4. Tax returns are due once a quarter.

For businesses subject to corporate, VAT, or Excise Taxes, tax returns must be filed once a quarter during the fiscal year. This means that companies should be submitting four tax returns a year.

In order to accurately submit tax returns, businesses must be preparing their statements per IAS/IFRS accounting standards. In addition, these statements and reports must be prepared and submitted to the Federal Tax Authority or FTA UAE.

To ensure that you are doing your tax returns correctly, it is highly recommended that you work with UAE taxation professionals. These experts will be able to walk you through every step of the process and maximize your VAT return in UAE.

After all, the new rules can be complicated to navigate, so you want to ensure you are working with a team that can simplify the process for you by outsourcing all VAT-related Compliances to certified tax agents approved by the Federal Tax Authority (FTA).

5. There are minimal taxes on wealth and property.

For the most part, there is no capital gains tax in the UAE. It only exists for sales of a company that is required to pay income or banking tax. Additionally, there is no inheritance tax. If the deceased did not create a will, the inheritance is administered according to Islamic Shari'a principles.

For property, there is a transfer charge that is applied to the transfer of property in the UAE. The percentage of this transfer tax is set by the individual Emirate and therefore varies. Usually, the buyer of a property pays this transfer fee.

Get help from the professionals

The taxation system in the UAE is designed to be advantageous for businesses that are looking to operate there. To ensure your company is set up to take advantage of these rules and regulations, reach out to MBG Corporate Services today.