UAE Tax: Heaven or Hell? Unveiling the Truth - ACE Tax Consultant

UAE Tax: Heaven or Hell? Unveiling the Truth

The UAE Tax system has left the people with full of surprises right after launching the Corporate Tax and VAT for individuals and businesses in the United Arab Emirates. Even though these taxes are in need to be applied across the UAE, as most of the Corporate Tax Consultants in Dubai, UAE came in support and favored this decision of the Ministry of Finance, still, many find it a little off beat and wouldn’t be satisfied with the decision.

This article is going to explain every bit of the UAE tax system, including the details about income tax, corporate tax, tourist facility tax, property transfer tax, capital gains tax, VAT, and more. Hence, you are advised to stay with this page to get impactful details!

The United Arab Emirates (UAE) Tax Guide

The tax system of Dubai, along with the other regions of the United Arab Emirates has drawn the major attention of residents, businesses, and tourist personnel. As per the business point of view, there is no taxation policy for the existing 46 free zones entitled across the United Arab Emirates, few of them include – Dubai Healthcare City, Dubai Knowledge Park, Abu Dhabi Global Market, Masdar City Free Zone, Sharjah Airport International Free Zone, Sharjah Publishing City Free Zone, and Fujairah Free Zone.

Since June 2023, the beginning of the financial year, companies under the territory of the UAE need to begin paying new Corporate tax at the 9% corporate tax rate, meanwhile, there are also a few exemptions there which lead individuals and small-scale businesses to not pay these taxes on a certain income limit or salaries.

The following guide will help you to understand the overall taxation policy of the region along with descriptive details about the same.

Also Read: What is the Tax Rate in Dubai?

Federal Taxes in the United Arab Emirates (UAE)

Several names of taxes came under the list of federal taxes in UAE. The complete list includes:

Income Tax You will be glad to know that there is no income tax in UAE levied on individuals region wide. This is due to the unavailability of individual taxes within the country. The same thing applies to self-employed individuals and freelancers who live in the Emirates with proper residential addresses.
Corporate Tax Corporate tax is a new regime levied on all companies with new profits of AED 375,000 or more. Meanwhile, there are some free zones approximately 46 across the country who are exempted from paying tax. As per the new Corporate tax rule, businesses will be charged a 9% tax rate annually.
Double Taxation The UAE seeks to prevent double taxation through bilateral agreements with various countries. These agreements ensure that income or gains are not taxed twice – once in the source country and again in the recipient country. UAE residents may also benefit from domestic laws that offer relief from double taxation.
Tourist Factory Tax Restaurants, resorts, and Hotels have all the rights to charge you under the following taxes with a specified tax rate.City tax would be between 6 to 10%The room rate would be deducted by 10%.The service charge would be 10%.Municipality fees and Tourism fees cast over 10% and 6%. It’s advised to consult tax consultants in UAE to get details related to tourist activities.
Property Transfer Tax Earlier, the UAE did not impose a property transfer tax at the federal level. But, as per the new UAE Tax policy, a 4% transfer charge is applicable for buyers. However, individual emirates might have their regulations related to property transactions. It’s important to refer to the specific rules of the relevant emirate when considering property transfers.

Regional Taxes in the United Arab Emirates (UAE)

Below you can find a complete list of regional taxes imposed by the UAE’s government. Let’s explore together:

Free Trade Zones UAE’s Free Trade Zones are special economic areas offering tax benefits, customs advantages, and full foreign ownership for businesses. These zones promote international trade, investment, and economic diversification. Companies within FTZs are exempt from certain taxes and enjoy simplified procedures, fostering economic growth and foreign investment.
Tourism fees per Emirates UAE’s tourism fees varied by emirate. Dubai charged a “Tourism Dirham” per night’s stay in hotels or accommodations, which goes from AED 7 to AED 20, while other emirates like Abu Dhabi also had similar fees that go up to AED 15 per night.
Rental Tax Rented property taxes are different and must vary between the Emirates. For instance, in Dubai residential tenants need to pay all and around 5% of their annual rent, while it goes 10% for commercial tenants. On the other hand, in regions like Sharjah, tenants need to pay a 2% rental tax.  

Taxes on Goods and Services in the United Arab Emirates (UAE)

Majorly there are two types of taxes implemented under the category of goods and service tax in the United Arab Emirates and these are – VAT and Excise Duty.

VAT The UAE introduced a 5% Value Added Tax (VAT) on January 1, 2018. It applies to a range of goods and services, impacting businesses and consumers. VAT revenue supports public services and economic diversification. Businesses must register and comply with VAT regulations set by the Federal Tax Authority (FTA).Meanwhile, several goods and services are complying with a 0% VAT rate, and the list includes:New residential propertiesInternational transportationHealthcare servicesEducation servicesAnd investment-related services
Excise Tax The UAE levies Excise Tax on certain products harmful to public health or the environment, like tobacco, energy drinks, and sugary beverages. Introduced in 2017, this tax aims to reduce the consumption of such goods and generate revenue for government initiatives. The rates and regulations are managed by the Federal Tax Authority (FTA).A 50% excise tax would be implemented on carbonated drinks including carbonated beverages, and excluding unflavored carbonated water.100% tax would be deducted on energy drinks containing products including ginseng, taurine, guarana, and caffeine.100% tax on tobacco and a range of products containing tobacco, including all the items listed in the GCC Common Customs Tariff – Schedule 24.
Refunds of VAT in the United Arab Emirates (UAE) Tourists visiting the UAE can claim VAT refunds on eligible purchases made at registered retailers through the Tax-Free Shopping Scheme. To qualify, items must be taken out of the country. The refund process involves validation, customs inspection, and refund collection at designated points, facilitating tourism and shopping.

Taxes on Wealth and Property in the United Arab Emirates

The introduced UAE tax system plays a crucial role in the overall economy of the country. That’s the reason the UAE’s government has introduced capital gains and transfer tax under the wealth and property taxation category. Have a look at both of them below!

Capital Gains Tax Generally, the UAE doesn’t impose a federal capital gains tax on individuals for profits from selling assets such as property or investments. However, specific emirates might have their regulations. Real estate transactions might be subject to transfer fees. Capital gains on stocks or other assets might not be directly taxed, but it’s crucial to stay updated with UAE laws, and consult tax agents from ACE Tax Consultants would help you in every possible way.
Transfer Tax A transfer fee of 4% in Dubai is liable to be applied as a property transfer fee in the UAE.

How New UAE Tax Policies Help Businesses and Individuals

The tax policies of the United Arab Emirates (UAE) have played a crucial role in fostering a favorable environment for both businesses and individuals. One of the standout features of the UAE’s tax system is its lower percentage of corporate taxes and no personal income taxes. This has significantly attracted multinational corporations and entrepreneurs, as it allows companies to reinvest their profits and individuals to retain a larger portion of their earnings. Moreover, the UAE offers various incentives to businesses, such as free trade zones and special economic zones, where companies enjoy reduced regulations, full ownership rights, and exemption from import and export duties. Additionally, the UAE’s Value Added Tax (VAT) at a relatively low rate of 5% has contributed to a new revenue stream for the government, enabling it to continue investing in public infrastructure and services.

For individuals, the absence of personal income tax and low indirect tax rates translates into a higher quality of life. This attracts professionals and skilled workers from around the world, boosting the UAE’s human capital and fostering a diverse and multicultural society. 

Need Help with the UAE Tax System? Consult ACE Tax Consultants

If you are operating a business in UAE or have complex tax matters that require professional assistance, hiring Corporate Tax Consultants, and VAT tax consultants in Dubai like us can be a wise decision. As a leading tax consultant in UAE, our experts possess specialized knowledge and experience in tax laws, regulations, and compliance matters specific to the United Arab Emirates.

The UAE tax system is characterized by a low-tax environment and strategic policies to promote economic growth. It includes Value Added Tax (VAT) at 5%, and Excise Tax on specific goods like tobacco and sugary drinks. Free Trade Zones offer tax incentives for businesses, and there’s no personal income tax. The system supports economic diversification, attracting foreign investment. To get inclusive details about the UAE taxation system and policy, refer to the specialists of ACE Tax Consultants.