It is no secret that Dubai’s tax-free living attracts skilled expats from all around the world.
Many people consider the United Arab Emirates (UAE) to be the financial and commercial hub of the Middle East. A very strong expat community resides there.
Foreigners from all over the world make up over 88% of the population of the United Arab Emirates.
But what does it mean to live in a tax haven? This is what we’ll explore in this article.
Expat Life in the United Arab Emirates
The UAE is a thriving part of the world that is playing an increasingly significant role in both international business and tourism.
In some regions, such as Dubai and Abu Dhabi significant investment has been made into the infrastructure, opulent skyscrapers and hotels now characterize these areas.
The UAE has a very significant expat community. For those on an international wage, the standard of living is high. There’s modern accommodation and medical facilities, good international schools and a highly developed infrastructure.
You’ll also find plenty to keep you entertained in the lively cities of Dubai and Abu Dhabi. This includes great beaches, water sports, indoor skiing, excellent restaurants, and sprawling shopping malls.
All this comes at a price though. The cost of living in the UAE has increased over recent years. Nonetheless, foreigners keep moving to Dubai due to its low taxation. So, let’s talk about the tax situation.
UAE Taxes in a Nutshell
Dubai’s zero-income tax rate is definitely one of the pros of living there.
It’s no secret that the UAE earns its revenue mainly through the oil industry and uses its no-tax policy to attract skilled expats and global companies to diversify and enrich its economy further.
The UAE doesn’t have:
- Income Tax
- Wealth Tax
- Inheritance Tax
- Payroll Tax
- Capital Gains Tax
- Real property Tax
Who in the United Arab Emirates must file taxes?
If you’re now thinking that no one has to pay taxes in the UAE, you’re not wrong; It really is the case that almost no one in the UAE has to file or pay any taxes at all on their UAE-source or foreign-source income. This applies to citizens, foreigners, employees and self-employed alike.
Many businesses in the UAE have historically enjoyed zero income tax on their profits. This, however, is set to change, with the Ministry of Finance (MOF) announcing on 31 January 2022 that federal corporate income tax (CIT) will be introduced in the UAE. The CIT regime is expected to apply for fiscal years starting on or after 1 June 2023.
The proposed CIT regime is expected to apply to all business (ie, commercial, industrial and professional) activities in the UAE, except for the extraction of natural resources, which is already (and will remain) subject to taxation at an Emirate level.
It was also announced that corporate tax incentives currently offered to free zone businesses will continue to be honored, to the extent, the free zone business complies with all applicable regulatory requirements and does not conduct business in mainland UAE.
What taxes are there in the United Arab Emirates?
A value-added tax is one of the main types of taxation that will affect the majority of expats living in the UAE (VAT). Beginning on January 1st of 2018, this tax was first imposed.
This tax is levied at a regular rate of 5%. However, some goods and services might only be subject to a 0% tax. These comprise food items, health, education, petroleum products, social services and bicycles. The financial services and residential property sectors are also exempt from VAT (with certain exceptions).
Just to give you anothere example for VAT rates; the standard VAT rate in Germany is 19%, in Spain it’s 21% and in Italy it’s 22%.
On some products deemed hazardous to human health, the UAE levies an excise tax. These comprise:
- Sweetened drinks
- Carbonated drinks
- Energy drinks
- Electronic smoking devices
- Tobacco products
The excise tax is 50% on carbonated drinks and 100% on the rest of the above-listed products.
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 expat counterparts pay 5%.
In Sharjah, all tenants pay a rental tax of 2%.
The municipality tax is calculated as 5% of your rental contract’s value for all premises, with a minimum amount to pay of AED 450 per annum. Although the total fee applies from the first day of the rental contract, the annual fees are broken down into monthly installments to make payments easier.
UAE tourist tax
The introduction of the Tourism Tax is to support the growth of UAE’s economic pillars – Trade and Tourism. The Tourism Tax will apply to all guests staying at hotels, hotel apartments, guesthouses and holiday homes.
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%)
Tourism fees and 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.
Abu Dhabi charges an additional 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.
There is a 4% transfer tax levied when a property changes hands. While that fee is supposed to be split between the buyer and seller, it’s usually the buyer who foots the bill. The tax is lowered to 2% in the Emirate of Abu Dhabi.
Compared to other property taxes around the world this is still a very low tax.
UAE International Position
It probably isn’t a big surprise to hear that the UAE has had to succumb to a lot of international pressure. You can imagine that other Western Countries aren’t too happy about the fact that their skilled professionals and entrepreneurial spirits leave for Dubai where they don’t have to pay any income taxes.
Nonetheless, the UAE forms part of international organizations such as the OECD. As a member of the OECD inclusive framework, the UAE will soon introduce the federal corporate tax rate as a stepping stone to the execution of its commitment to the global minimum effective tax rate concept.
The introduction of the corporate tax rate will seemingly also maintain some of the most distinct tax benefits of the UAE, for example, the tax benefits afforded to free zone registered entities. Inevitably, once the regime takes effect, different businesses might want to reconsider their corporate structures in order to avail themselves of the available tax benefits.
Thinking of moving to the UAE?
We have helped numerous people move to the UAE, establish a company there, or simply obtain a UAE residence visa as a backup plan. If you’re wanting to explore options to establish some sort of presence in the UAE please make sure to get in touch and we’ll guide you along the way.
As a firm that assists entrepreneurs relocate elsewhere we have witnessed first-hand the growing popularity of Dubai. Another aspect that people often overlook is the sense of power and freedom that comes with being in a zero-income tax place like the UAE.
It’s a powerful thing to live in a place where you don’t have to think about filing your annual taxes, hiring an accountant, a bookkeeper, or a tax expert to prepare your taxes only to be told you owe a third of your hard-earned money. All of that headache is gone and you truly get to just BE and focus on your own zone of geniusness.
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NOTICE: The content of this article is not to be considered as a legal opinion or tax advice. Wanderers Wealth does not hold itself out as a legal or tax advisor. If you want to receive a legal opinion or tax advice on the matter in this article please contact us directly and we will refer you to a legal practitioner.