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By AuditFirms.ae

Tax systems in UAE

Published On: 23 January 2024


The United Arab Emirates is a nation that draws the wealthiest people in the globe because of its extravagant lifestyle. People from all cultures and nations come to the UAE because of its distinctive qualities in order to enjoy an amazing and exotic lifestyle that is unmatched anywhere else. With its breathtaking desert landscapes, energetic and sophisticated towns, and strategic location next to Saudi Arabia in the Middle East, this region is well-known for being a hub for trade, business, and transportation in the modern and futuristic era. One of the UAE's most well-known features is that there is no income tax. This means that people, families, businesses, and investors can all profit financially and have desirable lifestyles in the country.

The UAE, unlike most other nations, does not rely on taxes to cover its needs because of its historical richness and stable economic sources. As expected of a globally recognised tax haven, the UAE has:

  • No income tax
  • No inheritance tax
  • No social security tax for non-Gulf Cooperation Council nationals
  • No capital gains tax – unless a company is taxable under another income tax
  • No estate or gift tax
  • No wealth tax
  • No luxury tax
  • No taxes on foreign pensions
  • No stamp duty on property purchases/sales
  • No crypto taxes

Even though it's a tax haven, residents, citizens, and enterprises still have to be aware of some taxes.

CORPORATE TAX

The net income or profit that corporations and other organisations make from their business operations is subject to corporate tax (CT), a type of direct tax. Under the UAE corporation Tax (CT) regime, taxable income over AED 375,000 is subject to 9% corporation tax beginning with the financial year that begins on or after June 1, 2023, and continuing thereafter.

The following will be subject to corporate tax:

  • Individuals and companies operating in the UAE Free Zone under a commercial permit. 
  • Businesses operating in free zones that meet all legal requirements and do not conduct business from the UAE's mainland will continue to be eligible for the CT advantages granted under the UAE Corporate Tax framework.
  • Any foreign organisations or people who carry on continuous or regular business in the UAE.
  • Companies engaged in agency, brokerage, development, construction, and real estate management.
  • Banking.

EXCISE TAX

Products that are considered to be hazardous to the environment or public health are subject to an indirect tax called excise tax. The UAE imposed an excise tax on energy drinks, carbonated drinks, and tobacco products on October 1, 2017. The UAE broadened the scope of its excise duty on December 1, 2019, to cover liquids used in electronic smoking devices and tools, sweetened drinks, and smoking tools.

The following are the applicable tax rates:

  • 100% on tobacco and tobacco products, energy drinks, liquids used in electronic smoking devices and tools.
  • 50% on all sweetened and carbonated beverages.

VALUE ADDED TAX (VAT)

Most products and services in the UAE are subject to a Value Added Tax (VAT) of 5% at the time of sale as of January 2018. Public services provided by the government are funded by the VAT revenue. The VAT is also intended by the UAE government to reduce the nation's reliance on oil and other hydrocarbons as a source of income. If a company's taxable supply and imports total over AED 375,000 annually, they must register for VAT. If their annual payment for imports and supply is more than AED 187,500, they can choose to register for VAT. All tax-registered firms in the UAE, including the Free Zones, are subject to the same VAT rates. But for taxation reasons, a particular Free Zone must be considered outside of the UAE if the UAE Cabinet designates it as a "designated zone." Goods moved between approved zones are exempt from taxes.

TOURIST TAX

Hotels, resorts, and restaurants are able to impose the following taxes:

  • 10% off the cost of the accommodation
  • 10% service charge
  • 10% municipal charge
  • 6%-10% city tax
  • 6% tourism fee

Hotel and tourism fees differ per Emirate.

UAE CUSTOMS DUTY

Customs duties are computed at 5% of the Cost, Insurance, and Freight (CIF) value for the majority of commodities. Certain categories have exceptions. Most notably, there is a 50% customs duty on alcohol and a 100% duty on tobacco items.

SOCIAL SECURITY TAX

A 17.5% social security tax is applicable to employees who are citizens of any of the six Gulf Cooperation Council (GCC) states; 5% of this tax is paid by the employee and the remaining amount is paid by the employer. Employees who work for businesses or branches that are registered in a Free Trade Zone (FTZ) are likewise covered by the social security programme. Depending on their home country, residents of other GCC countries can be required to make different contributions. The UAE does not impose social security tax on non-GCC nationals.

TAX SYSTEM FOR FOREIGNERS IN THE UAE

Regardless of residency status, there is no income tax in the UAE for individuals who work there. Depending on their national taxation regulations, those who may not qualify as tax residents of the UAE might still be required to pay income tax in their own country. Residents of the UAE are not subject to any taxes on foreign pension schemes.



CONCLUSION

Offering a tax-friendly atmosphere for enterprises, the UAE is well recognised as a tax haven. However, the UAE government has recently imposed taxes in order to support the nation's economic development and progress. The UAE will thus no longer be able to claim its tax-free status, but companies will have access to more transparency and recognition of the nation as a fully compliant jurisdiction with an appropriate framework. The UAE has complex and onerous tax legislation and compliance requirements, particularly for enterprises striving for smooth operations. An expert tax consultant plays a crucial role in this intricate financial environment. Tax consultants in Dubai play a vital role in helping firms maximise their financial efficiency while fulfilling their tax requirements. They offer thorough direction and assistance in many areas.

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