Dubai has long been known as a tax-free haven, with no income taxes imposed on individuals or businesses. However, the government has recently implemented various taxes to diversify its revenue and keep up with global trends. As such, it’s no surprise that taxes are an essential part of the financial system in Dubai and throughout the UAE economy. To ensure you know what kind of taxes you need to pay when doing business in or visiting Dubai, here is a quick overview of taxation in Dubai and the UAE. We will also touch on the upcoming changes in the UAE corporate tax starting in 2023.
Classification of Tax in Dubai
Taxation systems generally have two broad categories – direct and indirect taxes. Direct taxes are levied on individuals or businesses directly, while indirect taxes are imposed on goods and services.
- Direct Taxes: These include individual income tax, corporate tax for companies, capital gains tax, and property transfer fees.
- Indirect Taxes: These consist of value-added tax (VAT), excise duty, customs duties, tourism fees, real estate registration fees, and others.
We will now look closely at individual tax categories under both direct and indirect taxes in Dubai.
Tax in Dubai for Individuals
The income tax in the UAE for individuals differs depending on your residency status in Dubai.
Tax for Resident Individuals
Currently, UAE residents do not have to pay any direct income tax in the UAE on salaries, wages, or other forms of earnings. However, individuals pay indirect taxes when they purchase goods or services or consume specific services. This includes VAT, excise duty, customs duties, and tourism fees.
Tax for Non-residents and Foreigners
Foreigners and non-residents visiting Dubai may often pay specific tourism and property rental taxes levied on hotels, tourism centres, restaurants, and similar establishments. The tax rate depends on the accommodation type and duration. Some of the Dubai tourism taxes include
- Tax calculated on room rent in hotels and lodging facilities: Up to 10%. The tax amount depends on the star rating of the facility. For instance, it is AED 7 per night for budget hotels with one-star ratings, whereas the tourism fee is AED 20 for the high-end five-star ones.
- Service charge (restaurants and fine dining): Up to 10%
- Municipal tax: Up to 10% (depending on the region)
- City tax: From 6% to 10% (depending on the area and the Emirate you are visiting or residing in)
- Tourism fee: 6%
Source: DTCM Website The Department of Tourism and Commerce Marketing (DTCM) oversees and regulates Dubai’s tourism tax. Currently, DTCM does not require you to pay any tourism taxes for room rent if you reside in Dubai for 30 or more consecutive nights.
Social Security Contributions
The UAE has a social security regime that applies to qualifying UAE and other Gulf Cooperation Council (GCC) nationals. The policy requires the employer to withhold and remit 20% of an employee’s gross remuneration, with 5% contributed by the employee, 12.5% from the employer, and 2.5% from the government. The rate is higher in Abu Dhabi at 26%, where the employer, government, and employee pay 15%, 6%, and 5%. For non-GCC nationals working in the UAE, their respective home country’s regulations apply instead. In addition to this system, the Dubai International Financial Centre (DIFC) has introduced a new Employee Workplace Savings Scheme (DEWS), which replaces the End of Service Gratuity Benefit (EOSG). Under this scheme, employers must contribute monthly payments of 5.83% or 8.33% of an employee’s salary, depending on their length of service. This provides long-term savings protection for employees in the region. Source: DIFC Website
Tax in Dubai for Businesses
Until 2022, businesses have enjoyed a tax-free environment in Dubai. However, the government is introducing corporate taxes for companies registered in the UAE from 2023 onwards. The UAE Ministry of Finance (MOF) has levied a 9% corporate tax for businesses starting from July 1, 2023, for companies that begin their financial year in July. Companies that report their financial years from January will be subject to the newly imposed UAE corporate tax from January 1, 2024. The corporate tax, however, will not affect all businesses equally because the tax is effective only for businesses with a specific annual net profit. The taxation rates are as follows:
- Businesses that have a yearly net income or profit up to AED 375,000: Tax rate is 0%
- Businesses that have a net annual income or profit over AED 375,000: Tax rate of 9% on the amount exceeding AED 375,000
- Businesses operating within free zones may be exempt from corporate tax if they comply with certain conditions
There are separate tax policies for large multinational companies (revenue over EUR750m) as well as separate rules for specific industries including natural resource extraction, banks, investment funds and others. Source: Pexels
Tax Exemptions in Dubai
Dubai’s free zones have long been a beacon of opportunity for investors and businesses, offering zero tax, 100% ownership, and liberal profit repatriation policies. The UAE government has now made an exception to the corporate tax rate to ensure that these businesses remain exempt from taxation – meaning they can continue to benefit from all the advantages of operating in Dubai’s free zones. All free zone companies must submit complete and accurate taxation reports with 0% corporate tax rates. With this new policy in place, Dubai continues its commitment to creating a business-friendly environment that encourages entrepreneurs to set up businesses here.
Value-Added Tax in Dubai
Value Added Tax or VAT is a form of indirect tax imposed on goods and services within the UAE. The current rate for VAT in Dubai is 5%, introduced in 2018. All products and services, with few exceptions, such as essential food items and some medical treatments, are liable for the 5% VAT. Businesses registered for VAT need to charge it from their customers when selling taxable items or services. They can also claim back any input taxes paid on purchases made by their businesses. Companies operating in the UAE must register with the Federal Tax Authority (FTA) if their annual turnover exceeds AED 375,000. If a business’s yearly supplies and imports exceed AED 375,000, it must pay the 5% VAT in Dubai. Businesses with annual revenue less than AED 187,500 are not subject to the VAT and do not need to register with the FTA. On the other hand, registration is voluntary for businesses with annual revenue of between AED 187,500 to AED 375,000. Once registered, businesses must keep accurate records of all taxable items and services and any claimed input taxes. The FTA also requires businesses to submit VAT returns regularly, with the frequency varying depending on the size and turnover of the business.
Real Estate and Property Taxes in Dubai
Dubai’s real estate industry has been booming for the last decade, and it’s no surprise that taxes are now a part of this sector.
Property Rental Tax
Dubai levies a 5% tax on residential and commercial properties, depending on their annual rental value. Although in most places in the UAE, it is generally the tenant’s responsibility to pay the taxes, the municipal authorities in the Emirate of Dubai take a slightly different approach. If it is a commercial property, the rental tax is known as a market fee, which is to be paid by the property owners. For residential properties, the tax is called a housing fee and must be paid by tenants.
Property Transfer Tax
You may be liable for a land or property transfer fee when you buy or sell a piece of property in Dubai. This fee is set at 4% of the fair market value and is usually split between the buyer and seller. It goes to the Dubai Land Department (DLD) as part of its taxation system. Furthermore, even if you transfer shares in an entity that owns real estate within Dubai, this registration fee still applies. Also, remember that all property transfers in Dubai are subject to the regular 5% VAT. Source: DLD Website
Property Registration Fees
In addition to the land or property transfer tax, the DLD also levies a registration fee and administrative fees, as follows:
- Registration fees:
- AED 2,000 for properties valued less than AED 500,000
- AED 4,000 for properties valued at least AED 500,000 or higher
- Mortgage fees (if applicable): A flat fee of AED 290 in addition to up to 0.25% of the mortgage loan amount
- Administrative fees: AED 540
Upon completion of the ownership transfer process and registration, the new owner will also have to apply for and obtain an ownership certificate for a fixed fee of AED 250.
Excise Tax in Dubai
In Dubai, excise taxes are an indirect form of taxation imposed on certain items that can be hazardous to human health or the environment. Commonly referred to as “excise goods”, these include carbonated drinks like aerated beverages and energy drinks with stimulant substances such as caffeine; taurine; ginseng; and guarana. Tobacco products listed within Schedule 24 of the GCC Common Customs Tariff also fall under this category. Since its implementation in 2017, excise tax has become a significant source of revenue for the UAE government. The UAE authorities added electronic smoking devices or e-cigarettes to the list in December 2019. The current Dubai excise tax rates are as follows:
- Products related to tobacco, energy drinks, electronic smoking devices or vapes, and liquids for those devices are subject to a 100% excise tax
- Carbonated drinks and products with added sweeteners are subject to a 50% tax.
Export and Import Tax in Dubai
The UAE government introduced some significant changes in January 2023 regarding import tax. Now, goods bought from abroad with a value of more than AED 300 are subject to 5% customs duty and 5% VAT. Tobacco products, sweetened drinks, e-cigarettes, and vaping liquids are also subject to 200% customs duty plus the existing excise tax. However, items valued at less than AED 300 will remain exempt from import taxes. You generally don’t have to pay any taxes on exports from Dubai. However, depending on specific scenarios, the goods may still be subject to export taxes and VATs. Some of those factors are:
- Location and type of export
- Storage of the goods within the UAE
- The tax regime of the recipient’s country
- UAE’s taxation treaty with the recipient’s country
What is A Tax Residency Certificate
For businesses operating in the UAE, it is essential to get a Tax Residency Certificate (TRC), which is a document that certifies your business as a tax resident of the country. A TRC will help you access various benefits, including reduced tax rates and other incentives. In addition, a TRC may also help you benefit from the Double Tax Treaty (DTT) agreements negotiated between UAE and other countries. At present, the UAE government has DTT agreements with 137 countries. According to the agreements, income derived from international activities is taxed in either of the two countries and can be exempted from taxation in both.
How to Obtain Your Tax Residency Certificate
Residing in the UAE or Dubai for over six months as a resident is one condition to obtain your TRC. The other condition is having a valid residency visa or work permit. Once you meet both of these conditions, you can apply for your TRC from the Federal Tax Authority (FTA) in Dubai and UAE. You will also require several additional documents with your TRC application as follows:
- Valid residence permit
- Identity documents
- Copy of tenancy or lease agreements
- Proof of business income or salary
- Financial statements from the bank
- Filled up application and tax forms
Wrap-Up: Tax in Dubai
Taxes in Dubai and the UAE are becoming increasingly complex as the government strives to diversify its revenue and align to global standards. With new taxes being introduced, businesses must comply with all regulations and file all necessary documents. Professional help can substantially reduce your burden and simplify the process of complying with local taxation regulations. Virtuzone specialises in VAT and Tax consultancy in the UAE through its years of experience and a vetted team of experts. If you ever face any issue related to taxation in Dubai or the UAE, don’t hesitate to contact Virtuzone.