Are you planning to do business in Dubai or import goods into this global city? If so, you’ll need to get to grips with the Dubai import tax. For instance, did you know that the actual tax can vary depending on certain conditions or goods?
Let’s explore the legal framework, tax calculation methods, and specific products subject to import tax in Dubai. We’ll also debunk common misconceptions, discuss import tax exemptions, and examine the real impact of import tax on business in Dubai.
By staying informed about future trends of import tax in Dubai, you can stay one step ahead. This comprehensive guide has all the information you’ll need to navigate Dubai’s import tax landscape.
Understanding Dubai Import Tax
Overview of Dubai Import Tax
Dubai, part of the United Arab Emirates (UAE), started a Value Added Tax (VAT) system on 1 January 2018.
The general VAT rate is 5% and applies to the price of most goods and services. However, you’ll find that certain goods and services may have a 0% rate or even be exempt from VAT as long as they meet specific conditions.
Legal Framework for Import Tax in Dubai
The legal framework for import tax in Dubai is quite thorough. If you’re running a business in the UAE, you’ll need to know that the mandatory VAT registration threshold is $102, 110 (AED 375,000). The voluntary registration threshold is $51, 055 (AED 187,500).
There’s no registration threshold for non-resident businesses making supplies that require UAE VAT to be levied, paid or charged. You could face fines and penalties if you don’t comply with VAT obligations. These penalties can be both fixed and tax-geared.
You should also know that certain transactions in goods between companies established in UAE Designated (Free) Zones (DZs) may not be subject to VAT.
How Import Tax in Dubai is Calculated
The calculation of import tax in Dubai depends on several factors. Generally, a customs duty of 5% is imposed on the cost, insurance, and freight (CIF) value of imports. However, other rates may apply to certain goods, like alcohol and tobacco.
You might also find certain exemptions and reliefs. The UAE also imposes anti-dumping duties on imports of certain goods, such as car batteries, ceramic and porcelain tiles, and hydraulic cement. The anti-dumping duty rates vary depending on the HS codes of the goods and the country of export and/or origin.
Products Subject to Dubai Import Tax
A wide range of products are subject to import tax in Dubai. On 1 October 2017, the UAE introduced an excise tax on tobacco and tobacco products, carbonated drinks, and energy drinks. This was expanded on 1 December 2019 to include sweetened beverages, electronic smoking devices and tools, and liquids used in electronic smoking devices, medical equipment and tools.
The tax rates levied are 100% on tobacco and tobacco products, electronic smoking devices and tools, liquids used in electronic smoking devices and tools, and energy drinks. A 50% tax is applied on carbonated beverages and sweetened drinks.
The UAE also levies import duties on commercial goods. These duties depend on several factors, including whether your business is registered onshore or in a Free Trade Zone (FTZ), the nature of goods being moved, the source and destination of the goods being moved, trade agreements between the UAE and the importing goods exporting country, and other applicable laws and regulations.
Commonly Imported Goods and Their Taxes
Different categories of goods attract varying tax rates when imported into Dubai. These rates should be factored into your cost calculations.
Example: Tax on Imported Vehicles in Dubai
Importing a vehicle into Dubai requires careful planning. The shipping cost of a car from the US to Dubai can range from $3000 to $7000, influenced by factors like the make and model of the vehicle, your current location, and the nearest departure port in the USA.
A valid UAE residence permit is required to import a car into Dubai. Several documents must be provided, including the original invoice, certificate of origin, and proper insurance. Please complete the initial documentation to avoid the customs authorities’ additional $300 fee.
Upon the vehicle’s arrival in Dubai, Customs will inspect it to verify the declared value. Any discrepancy will require you to pay the difference. After the import tax and duties are paid, the UAE’s Traffic & Licensing Department will issue a Vehicle Clearance Certificate (VCC). This process usually takes 2-3 days.
The import duty for vehicles in Dubai is 5% of the vehicle’s value. This is in percent import customs duty in addition to 1% insurance and shipping costs. VAT applies to all service charges, which is 5% of CIF value on all cost elements.
Import Tax Exemptions in Dubai
For entrepreneurs and business owners, understanding the specifics of import tax exemptions in Dubai can provide a significant advantage. This includes the concept of tax-free zones.
Understanding Tax-Free Zones
Dubai houses over 30 FTZs, each tailored for specific industry categories. Zones in specific areas, such as the Jebel Ali Free Zone, Dubai Multi Commodities Centre (DMCC), and Dubai International Financial Centre (DIFC), provide foreign investors with tax incentives and customs duty benefits.
Initially established in Fujairah Emirate, the International Free Zone Authority (IFZA) is now in Dubai Silicon Oasis (DSO). These zones are projected to triple by 2024, creating more business opportunities.
Goods Eligible for Import Tax Exemptions
The Dubai Customs Authority sets rules for import tax exemptions. For example, from 1 January 2023, the threshold for the value of consignments shipped to Dubai for customs duty exemption was reduced to AED 300 ($81).
However, this rule doesn’t extend to certain goods. Tobacco products, e-cigarettes, nicotine liquid, alcoholic beverages, and foods containing tobacco or alcohol are subject to customs duties regardless of their value. The rule also exempts consignments of cards, mail, visually impaired leaflets, and print materials from customs duties.
Procedure to Claim for Import Tax Exemption
A request for customs duty and excise tax exemption for factories holding an industrial production license must be submitted to claim an import tax exemption. This is where additional information is required after adding or increasing raw materials, machinery, equipment, and packaging materials to the factory quota.
The prerequisites for customs duty exemption include the following:
- An industrial production license or initial approval certificate for machines.
- A shipping policy notice.
- A materials list.
- A certificate of origin.
- Original invoices.
Each HS code costs 100 AED ($27), and the service is available 24/7.
Registration with Dubai Customs and obtaining a Customs Business Code is also necessary. Customs declarations should be submitted using the business code for customs clearance. For Free Zone companies, an appropriate customs declaration should be processed to sell and export goods to the mainland.
Some goods require special approval from restricted authorities. This approval must be issued for the restricted goods to be released. The various authorities’ approvals must be submitted along with the other required documents to the customs authorities to complete the customs clearance.
Misconceptions about Import Tax Exemptions
Some things need to be clarified about import tax and tariff exemptions in Dubai. For instance, goods that have been temporarily exported for finishing or repair are subject to customs taxes “duties” in an amount equivalent to the addition resulting from such finishing or repair.
The value of imported machinery is determined by allowing depreciation from the prices of new machinery for the period of use, with appropriate additions made for any repair done and additions made in between.
The customs value for goods imported to Dubai is based on CIF according to the Common Customs Law of GCC States and its rule of implementation and explanatory notes thereof value of the exported goods is that indicated in the customs declaration plus the cost until the arrival of the goods to the port of destination in GCC States. The exchange rate of the foreign currency at the time of Customs declaration submission will be considered for the calculation of Customs charges.
It’s also worth noting that some products, such as restricted goods such as alcohol and cigarettes, are taxed at higher levels compared to other countries.
Alcohol, for instance, is heavily taxed, with 50% taxation on imports and 30% tax at the point of sale. Other items like cigarettes also face higher taxation levels.
Impact of Import Tax on Dubai Businesses
As a Dubai-based entrepreneur, the recent alterations in import tax regulations might be impacting your bottom line. These modifications can significantly influence operational costs and customers, particularly for businesses that rely heavily on imported goods.
How Imported Goods Prices Are Affected by Import Tax
The introduction of Customs Notice 05/2022 by Dubai Customs has escalated the price of imported goods. Effective 1 January 2023, this regulation levies customs duties on shipments of goods imported to Dubai with a value exceeding $81.
This substantial decrease in new customs duty from the former threshold of roughly $264 means that courier companies are now obligated to pay customs duties at the border for such shipments. This additional cost is subsequently transferred to you, the Dubai-based consumer, leading to a surge in the prices of imported goods.
Influence on Local vs Imported Market Shares
The alterations in import tax have also caused a shift in the market shares of local versus imported goods. The Dubai Government has introduced a stimulus package to assist commercial businesses in mitigating the impact of COVID-19 and ensuring the continuity of imports. As part of this package, customs duties for imports into Dubai will be reduced by 20% for all imported goods sold on the local UAE market.
This decrease in new customs duty and tariff rate from 5%t o 4% on food commodities is anticipated to enhance the competitiveness of imported goods.
This could cause a shift in the market shares of local and imported goods.
Tax Impact on Businesses with Global Supply Chains
For businesses with international supply chains, the impact of the changes in import tax is likely to be significant. The reduced threshold for consignment value implies that these businesses will now have to pay more in customs duties. This increases their operational costs and could affect their profitability and competitiveness in the market.
Long-term Effects of Import Tax on Business Profitability
Over time, the changes in import tax could significantly impact business profitability. The increased cost of imported goods could lead to higher prices for consumers, potentially affecting demand. Conversely, the reduction in customs duties as part of the stimulus package could assist businesses in recovering from the impact of COVID-19 and enhance their profitability. However, it’s evident that businesses will need to adapt to these changes and devise strategies to mitigate the effects of import tax on their operations.
Future Trends of Import Tax in Dubai
Dubai’s import tax landscape is evolving. Policy adjustments, the worldwide economic climate, and potential new tax policies are driving these changes.
Policy Changes Influencing Import Tax Rates
A significant policy adjustment by Dubai Customs has been recently implemented. This change has led to an increase in costs for courier companies, who now have to pay customs duties at the border for certain consignments.
However, it’s important to note that this rule doesn’t extend to certain goods like cards, mail, print materials, and specific types of food and beverages.
Impact of Global Economic Environment on Import Tax
The worldwide economic climate significantly influences import tax policies. For instance, the UAE government has announced the introduction of a federal corporate tax on business profits for the first time. This tax is designed to support small businesses and startups, and it is among the most competitive in the world.
However, it doesn’t extend to personal income unrelated to a UAE trade or business. It could impact smaller enterprises with high set-up and business renewal costs.
Potential Shifts in Dubai’s Import Tax Policy
With these recent adjustments, we might see further changes in Dubai’s import tax policy in the future. The introduction of the federal corporate tax could lead to alterations in import tax rates or exemptions. Suppose you’re operating a business in free zones. In that case, you can continue to benefit from corporate tax incentives, provided you meet all the necessary requirements.
Influence of Import Tax on Dubai’s Economic Growth
Import tax plays a crucial role in Dubai’s economic growth. The recent changes in import tax policy are likely to impact the economy significantly. These changes could influence the cost of doing business in Dubai and the competitiveness of Dubai’s business environment.
These changes could also impact the city’s health and overall economic health and growth. Therefore, businesses and individuals must stay informed about these changes and understand how they might affect their operations.
Wrapping Up: Navigating Dubai Import Tax
As we’ve examined, Dubai’s import tax landscape is intricate yet navigable. As a business owner in Dubai, understanding and keeping abreast of changes in VAT rates, customs duties, exemptions, and thresholds is essential to ensure fiscal compliance and profitability. Equally, it’s crucial to factor in such expenses in your operational costs.
Every detail, from understanding tax-free zones and rules for different categories of goods to the effects of import tax on business profitability and future trends, can help your business stay competitive in Dubai’s dynamic market. Now more than ever, businesses must stay informed and adapt quickly to Dubai’s tax policy shifts to ensure their long-term sustainability and success. Keep this guide handy as a compact, comprehensive resource for navigating the complexities of import tax in Dubai.
