Is Dubai Tax Free?
Is Dubai Tax Free?
People are attracted to Dubai for many reasons, career opportunities, tax-free income, luxurious hotels and year-round sunshine to name just a few. The emirate is a magnet for investors and entrepreneurs and consistently ranks highly on foreign direct investment indices.
Due to the absence of income tax in Dubai and the emirate’s many economic free zones which offer business incentives such as exemption from corporation tax, zero customs duties and full repatriation of capital and profits, people incorrectly assume that Dubai is completely tax free. While there is no income tax on income generated in Dubai and no sales tax on most goods and services, Dubai is not 100% tax-free.
The UAE does not levy income tax on individuals, therefore there are no individual tax registration or reporting obligations.
Most of the tax revenue that the country generates comes from the corporation tax imposed on select foreign multinational businesses.
The UAE currently has no federal corporate tax regime. However, corporate tax does exist at an individual emirate level. These are established by each emirate via tax decrees but in practice are only imposed on foreign oil and gas companies or branches of foreign banks.
The UAE recently announced changes to the existing laws, and from the financial year of June 1st, 2023, a federal Corporate Tax (CT) will be introduced on business profits of any UAE-incorporated LLC, PSC, PJSC, or other mainland business entity. Foreign legal entities based in the UAE and branches of foreign and UAE companies will also be subject to the tax.
The proposed tax rate is 9%. Its introduction is a measure to ensure the UAE’s compliance with the OECD’s Base Erosion and Profit Shifting (BEPS) project. Businesses subject to the CT must register with the Federal Tax Authority to obtain a tax registration number.
Having little production beyond oil, Dubai requires most items to be imported, and the majority of these are tax-exempt. However, as a Muslim country, Dubai’s tax structure is consistent with Islamic philosophy and as such it levies high taxes on products which contradict Islamic principles or are deemed to be a danger to society. Articles such as tobacco, alcohol, weapons, and ammunition, are taxed heavily. Alcohol has a 50% import duty and an additional 30% sales tax.
Dubai has significant entertainment taxes. Tourism is a major part of the economy and its tax revenue contributes greatly to government funds. Most restaurants you visit in Dubai now opt to charge a 10% total bill tax, called a “service charge”. There are other types of tourism taxes you will or might be charged including
• 5% VAT
• 7% Municipality fee
• 10% Property service charge
• “Tourism Dirham Fee” aka Hotel Tax or City Tax, per room, per night 7 – 20 AED (varies depending on hotel grade)
• 6% Tourism Fee
The idea is that the local Dubai population does not pay these taxes because they are levied on tourists. Taxes are also levied on theatres, amusement parks, and other entertainment or leisure activities.
Tax on Utility Bills and Transportation
A council tax is levied when utility bills are generated, which means that electricity is taxed in Dubai. Dubai also charges tolls on highly transited roads and highways. These fees are collected by the Roads and Transportation Authority (RTA) and help contribute to Dubai’s significant public budget. Parking is also owned by the state, and tariffs are charged for parking in public areas via a pay-as-you-go system or through use of long-term seasonal parking cards.
Withholding and Property Taxes
The UAE does not have any withholding taxes, nor does it have an official property tax. However, there is a Dubai housing fee which is charged to expats who rent or own properties in Dubai. The charges are considered as a contribution towards civic services in the city such as food safety, security, waste management etc.
For tenants the rate is 5% of the annual rent and for owners the fee is calculated from the official rental value as per the Real Estate Regulation Agency (RERA) Index. When a property is sold a 4% transfer fee is also charged.
How to Qualify as a Tax Resident in the UAE?
The Federal Tax Authority issues tax residency certificates (TRC) valid for one year. If you have a 6-month contract and stay in the emirate for six months, you will remain an ordinary resident of your home country for tax purposes, and your income will likely be subject to your home country’s taxation. To obtain the TRC, a “natural person” must reside in the UAE for 180 days or more, and a “legal person” must be established in the UAE for at least one year. Note that if you work in Dubai and wish to establish residency, you will need a UAE Government issued ID card.
Double Taxation Treaties
Dubai is an attractive location for foreign investors because of the double taxation treaties the UAE has signed with many of its key trading partners. These treaties allow for the avoidance of double taxation for companies that have operating offices in Dubai and abroad. As a foreign investor, you should be aware of the existence of a double taxation treaty between the UAE and your home country. While the list changes regularly, there are currently 137 agreements that the UAE has established with other countries which encourage the free flow of trade and help to cement international relations.
While Dubai is not entirely “Tax-Free,” it has numerous tax benefits and investor friendly policies which benefit those who choose to make it their home. The various taxes that exist are minimal when considering the high quality of life that expats enjoy, and even with the imminent arrival of the new CT, the proposed rate of 9% remains lower than most other countries and the most competitive among the UAE’s GGC neighbours. For those that can establish tax residency in Dubai and are from countries that have signed double taxation treaties, the tax rate can be significantly lower than what they would find in their home country, making Dubai a prime destination for expats to reside and conduct business.
How can PRO Partner Group help?
PRO Partner Group has years of experience helping investors navigate the legal and regulatory requirements of doing business in the UAE. Our team of experts has extensive knowledge of tax requirements and business practices in Dubai, the wider UAE and other GCC countries.
If you need assistance with taxes in Dubai, or for any other related company setup, restructuring, local partner or PRO support matter in Abu Dhabi, Dubai, the wider UAE, Oman, Qatar or Saudi Arabia, then please do get in touch with us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at firstname.lastname@example.org or complete the contact form below and we will be delighted to assist you.