Dubai is an attractive destination for foreign investors and citizens looking for a place to work as it is considered a tax-free city. The United Arab Emirates Government does not impose income taxes to companies and individuals living in the country. However, foreign citizens registered for taxation purposes in other countries and making profits in Dubai may be required to pay certain taxes. Dubai has also concluded different double taxation agreements with other countries in order to reduce the taxes applied to foreign citizens when repatriating profits to their home countries and thus becoming even more attractive to foreign enterprisers.
Below, our company formation consultants in Dubai explain how the taxation system works here. We can also assist with company registration and accounting services in Dubai, so if you need guidance, you can rely on our local specialists.
Table of Contents
Tax legislation in Dubai
Dubai is one of the seven emirates of the UAE and the federal government has exclusivity when it comes to the taxation system. However, the national government has not issued any tax laws leaving each emirate to decide on how to impose the taxes on individuals residing here and companies registered in the country.
The Dubai taxation system relies on a set of tax decrees which have been issued in 1969, however, in 2018 several tax laws have been issued by the UAE government. These laws refer to the introduction of the value added tax and the excise tax. Also, starting June 2023, the 9% corporate tax is set to enter into effect.
An important part of the tax legislation in Dubai is related to the double tax agreements signed by the UAE. At the moment, the UAE has more than 100 such conventions signed which means local and foreign citizens and enterprises benefit from various tax exemptions or reductions on certain incomes.
Our company registration specialists in Dubai can offer detailed information on the newest laws related to taxation in this emirate.
The corporate tax in Dubai (UAE)
In order to be taxed, companies in Dubai must comply with a few requirements imposed by the local government. First of all, the business must be registered and operate in Dubai through a local company or branch office, and secondly, it must be engaged in trading activity. Also, the 9% corporate tax will be imposed starting June 2023. Most of the times, the tax year in Dubai coincides with the calendar year.
Dubai’s taxation system has also changed, with the mention that the new 9% rate will become effective starting this summer. Specific corporate taxes still apply to several types of companies, among which:
- Dubai companies operating in the gas and oil industry,
- branches of foreign banks operating in Dubai.
While Dubai gas and oil companies are subject to a 55% tax rate applied to the company’s profits, branches of foreign banks are required to pay a 20% tax rate on the taxable income. However, there are no withholding taxes for remitting dividends, royalties or interests abroad. Starting with 2023, the new corporate tax came into effect and it is imposed at a rate of 9% for businesses with profits of more than 375,000 AED or approx. 100,000 USD.
You can rely on our local accountants and bookkeepers for assistance in various taxation matters related to your company in Dubai. You can also rely on our specialists if you want to open a company in Dubai.
For complete information about the taxation of businesses, you can obtain more information from our company registration agents in Dubai.
You can also find out from this video what the main taxes in Dubai – UAE are:
Taxation in free zones in Dubai
Dubai is surrounded by free trade zones in which foreign investors may benefit from various tax incentives. As a matter of fact, free zones have been created by the Dubai government as incentives for foreign entrepreneurs seeking to do business in a low tax environment.
When it comes to paying taxes in Dubai free zones, the following aspects should be considered:
- most free zone authorities provide for exemptions from the income tax for companies;
- the corporate tax exemptions offered by free zone authorities are granted for periods of up to 50 years, under certain conditions;
- the repatriation of profits from free zones to other countries is also free of charge;
- there are no capital gains or withholding taxes levied in any of Dubai’s free zones.
For accurate information on taxation in Dubai free zones, it is best to consult with our local advisors who can also help you set up companies in a free zone of your choosing.
The value added tax in Dubai
As mentioned above, the introduction of the VAT in Dubai at the beginning of 2018 is one of the most important changes in the UAE’s taxation system. The value added tax is levied at a national level and implies:
- its collection by companies in Dubai, however, the VAT will be imposed on the final consumer;
- the VAT rate in Dubai is one of the lowest in the world, as it is established at 5%, however, there is also a 0% rate of the VAT;
- the introduction of the VAT will imply for all companies incorporated or to be incorporated to register for VAT;
- VAT-registered companies can claim refunds from the tax authorities in Dubai based on a set of documents they must record.
From an accounting point of view, the introduction of the value added tax in Dubai implies more extensive requirements, however, it also comes with several advantages such as the refund of the tax under certain conditions.
Another aspect to consider is the visitors and tourists coming to Dubai have the right to apply for VAT returns on the goods they purchase during their stay here.
If you need any information related to the payment of the VAT in Dubai, our agents are at your disposal.
The excise tax in Dubai
The excise tax in another important levy which was introduced in Dubai in 2017. It is also an indirect tax which applies to goods with a high harming potential on human health. The goods for which the excise tax is imposed are carbonated and energy drinks and tobacco and related products.
The rates of the excise tax in Dubai are 50% for carbonated drinks and 100% for energy drinks and tobacco.
Dubai companies must pay the VAT and the excise tax electronically on the website of the Tax Authority in the UAE.
Other taxes in Dubai
Even if there is no value added tax levied in Dubai, there are other indirect taxes applied to individuals. The following taxes are levied by the Dubai tax authorities:
- a 10% municipal tax applied to hotels and other entertainment facilities,
- a 10% municipal tax on the rental of commercial spaces,
- a 5% municipal tax on the rental of residential property in Dubai.
The Dubai Electricity and Water Authority also apply certain taxes on utility bills and there is also a road toll. Foreign citizens must also be aware that bringing or purchasing alcohol within the Emirate is subject to different tax rates.
For details about all the taxes applied in the UAE, please contact our Dubai company formation agents.