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Taxation in Dubai

Taxation in Dubai

The United Arab Emirates Federation was established in 1971 and it has grown into one of the most important economies in the Middle East throughout the last years. The Federation is comprised of seven emirates and each one of them has enforced its own tax law, but only Abu Dhabi and Dubai are currently applying income taxes only in few sectors.

Below, we invite you to read about the taxation system applicable in Dubai. With the help of our company formation agents in Dubai, you can also set up a business here. Additionally, we offer accounting services to those who want to have a clear picture of the taxes which need to be paid in Dubai and other emirates in UAE. 

What are the taxes that need to be paid in Dubai?

The Dubai taxation system is one of the most advantageous in the world because the government here imposes only a few taxes. The following taxes are paid in Dubai:

  1. the corporate income tax which is levied at a rate of 9% for profits of more than AED 375,000 starting with January, 2023;
  2. the rental tax which is levied on the rental of real estate properties located in the Emirate;
  3. the tourist tax which is levied at a rate of 10% (other taxes could also apply for various services);
  4. the value added tax which was introduced in the UAE and the entire GCC region in 2018.

There is no personal income tax in Dubai. Also, there are no withholding or capital gains taxes levied in Dubai.

Foreign citizens coming with the intention of opening a company in Dubai can rely on our local consultants for assistance during the incorporation procedure. We can also help you with details about taxation in UAE.

Tax residency in Dubai

Even if Dubai has its particularities when it comes to taxation, the authorities here impose the taxes based on the income generated by a company, considering there is no income tax imposed on Dubai resident individuals. It is important to note that in their home countries, both individuals and companies with foreign origins could be liable for taxation.

In order to be considered a tax resident in Dubai, an individual must live in Dubai for a longer period of time in order to not pay taxes in his/her country of residence. However, under a double tax treaty with the UAE, a foreign citizen can benefit from specific tax deductions or exemptions.

In the case of companies, the tax residency is easier to establish considering that a company needs to fulfill one of the following requirements:

  • the shares in the company are owned by Dubai or UAE residents;
  • most or all the income of the company is generated by trading activities carried out in the UAE;
  • the company has a management place or exercises its control over the business from the UAE.

It is important to note that these requirements do not apply to companies in the oil and gas sector. Also, branch offices of foreign banks will be taxed in Dubai.

Our company formation representatives in Dubai can offer more information on tax residency status in UAE.

The corporate taxation system in Dubai – UAE

The main regulatory framework establishing the tax regime is the Dubai Income Tax decree, issued in 1969, that states only companies in the oil, gas, petrochemical, and banking system are subject to the corporate tax. Oil, gas, and petrochemical companies are subject to a 50% flat tax rate in Dubai, while branches of foreign banks are subject to a flat rate of 20%. For those wanting to open a company in Dubai, it is also important to know that companies will benefit from free trade zones with up to 50 years of tax exemptions and no customs duties.

You can find out from the video below how companies and individuals are taxed in Dubai: 

Other taxes applied to corporations in Dubai

Even if there are no personal income taxes, any withholding taxes on dividends, capital gains there are few other taxes that apply to corporations. For example, Dubai companies must pay a real estate property tax to the municipalities.

Depending on the company’s status, the tax rates vary between 5% and 15%. Managers of companies in the commercial and industrial field will be subject to a 5% tax rate of their annual rent, while managers of branches of foreign banks will be subject to a 15% tax rate. Employers must also contribute to the pension fund of national employees by paying a 12.5% tax and national employees will be subject to a tax rate of 5% for the same pension funds. Services taxes apply in hotels and restaurants also at rates that vary between 10-15% for hotel accommodation and 5-10% in restaurants.

Taxes applied to individuals in Dubai

Even if prescribed in the 1969 UAE Tax Law, the income tax was never levied in any of the Emirates. Individuals living in Dubai are not required to pay any tax on their income. Also, the Government does not impose any tax on income derived from capital gains, transfer of properties, or inheritances. Individuals are only required to pay a tax on alcohol, provided that they have obtained a liquor license previously, a 5% municipality tax when renting a property, and a 10% tax on hotel and restaurant services.

The value added tax in Dubai

As mentioned above, in 2018, the Dubai taxation system suffered one of the most important changes in decades, with the introduction of the value added tax. This decision was made at a regional level, thus all countries in the Gulf Cooperation Council region have now enabled this tax.

Just like in Western countries, the value added tax is an indirect levy imposed on the final consumer upon the purchase of goods and services from Dubai companies. This implies Dubai companies to collect the amounts of money due for the tax and their distribution to the Ministry of Finance in the UAE through the Federal Tax Authority.

In order to pay and collect this tax, companies in Dubai must first register and obtain a VAT number. Our company formation advisors in Dubai can assist with VAT registration during or after the business is incorporated with the Trade Register.

The value added tax applies as follow:

  • at a standard rate of 5% on most goods and services sold by Dubai companies;
  • there is also a 0% rate applied to the export of goods, healthcare products and the supply of residential properties;
  • VAT registration is voluntary for companies with turnovers of less than 187,500 AED;
  • VAT registration is mandatory at the time a company has a turnover of more than 375,000 AED.

Dubai companies are required to file monthly or annual VAT returns depending on their turnover.

If you want to open a company in Dubai and need information about the payment of the VAT, our local agents are at your disposal with updated information.

Taxation in Dubai free zones

Dubai is known for the numerous free zones it has. An important fact about them is that each zone is governed by its own authority. One of the most important advantages of free zone companies is that most of them are not subject to corporate income taxes, or better said are granted tax exemptions for up to 50 years. Moreover, the repatriation of profits from free zones is free of charge.

If you are interested in setting up a company in a free zone in Dubai, our agents are at your disposal for complete assistance. We can also help you with various taxation matters related to your Dubai free zone company.

Taxation treaties in UAE

UAE has concluded double taxation treaties with a significant number of countries in order to make the investment environment more attractive to those who want to set up a company in Dubai.

The treaties have been enabled to reduce tax burdens for companies redistributing their profits in other countries with more aggressive taxation systems. Some of the countries Dubai has signed tax treaties with are neighboring countries in the Middle East, Germany, Italy, Malta, the Netherlands, France, Greece, Switzerland, and Spain – to name a few in Europe – Canada, Australia, China, Japan, India, and South Korea.

Taxation in DIFC

One of the most appealing and prolific free trade zones in Dubai is DIFC or Dubai International Financial Centre that hosts a large number of companies, local or established with foreign capital. The taxation in this special free zone is stipulated by Law No.1 of 1999 and it refers to the banking sector, oil and gas field in Dubai. As such, the corporate income tax of 20% rate is imposed on financial institutions registered in DIFC, and mostly to branches of foreign companies in Dubai. There are other tax exemptions in DIFC, such as no taxation on profits repatriation, and no import & export duties. The company formation in DIFC is quite simple, without harsh formalities, plus, you can benefit from complete assistance and guidance from our specialists in this field. We also remind that the UAE signed a series of double taxation treaties with countries worldwide, with the purpose of avoiding the taxation twice on incomes.

VAT registration in Dubai

The VAT was implemented in the UAE starting in January 2018. This was a long-discussed process until it was approved and then executed by the financial authorities in the UAE. Nowadays, the VAT registration process is straightforward and can be entirely overseen by one of our specialists in this field. It is important to note that the VAT is applicable to goods and services available for sale and paid by the final consumer.

In terms of registration, companies and natural persons having VAT-taxable supplies can register for this tax. Companies selling and importing products and services of more than AED 375,000 must register for taxation. The VAT file returns are imposed on companies that collect this kind of tax. The company business license, a copy of the Articles of Association, information about the bank account of the company, plus personal documents of business owners, administrators, and representatives are required for VAT registration in Dubai. We remind you that we can assist local and foreign entrepreneurs in properly register for VAT in UAE. We will make sure the entire registration process will be in accordance with the requirements imposed by the legislation.

Short facts about income tax in Dubai

Because the tax system in Dubai is extremely attractive to entrepreneurs, having no income tax imposed is a great business advantage. Both natural persons and companies in Dubai enjoy this huge tax advantage. Moreover, having no income tax to pay on profits allows companies in Dubai to concentrate more on future investments in the firm. Dubai hosts a large number of local and international companies that benefit from an appealing tax structure. The main advantage is the lack of income tax imposed on profits that attracts investors from all over the world who want to develop their activities in a stable and highly appreciated business climate. Dubai aligns with appreciated international financial centers that provide the proper environment for business development and many more.

Making investments in Dubai

Dubai is a solid business destination that hosts a large number of investors and companies of any kind. The evolution of the past decades transformed Dubai, relatively fast, in a solid and highly appreciated business destination in the world. Having a wide range of special free trade zones is not only a business advantage but also a great privilege of developing the activities in a safe and appealing environment sustained by the multitude of encouragements and incentives. The taxation regime plays, probably, the best role in the business field because there are no taxes imposed on profits, except the companies activating in the banking sector, oil & gas field.

The tourism sector, construction, real estate, hospitality and food services, automotive, research and development, financial and insurance, energy, engineering, manufacturing, education, and healthcare are the fields that attract most of the foreign direct investments in Dubai. The following facts and figures show a part of the great business and economy direction of the UAE nowadays:

  • The 2020 Doing Business report ranks the UAE 16th out of 190 economies in the world.
  • Approximately USD 154 billion was the total FDI stock of UAE in 2019.
  • USA, UK, Saudi Arabia, India, and France are the main investors in the UAE.
  • 100% ownership is offered in the free trade zones in Dubai.

Would you like to know more about taxation in Dubai? Let one of our specialists explain more and guide you throughout the registration process of your business. For details about company formation, you can contact our company incorporation agents in Dubai.