One of the key ways any country generates revenue is by levying taxes on the country’s individual residents, businesses, and companies. The United Arab Emirates is no different in that respect as it also levies taxes, but both its tax rates and the way its tax system works are very different.
For a long time, there was no taxation in the UAE, as the country generated enough funds from the sale of oil to maintain its infrastructure easily. But now as both its and the world’s reliance on oil decreases, the UAE has diversified its revenue schemes, through taxation and other means.
But even now the UAE Tax System is very lenient i.e. the tax rates are very low. So, if you are an individual or a business and want to understand the rules of Tax compliance in UAE, we will explain them completely in this guide.
UAE Tax System Explained
The tax system in UAE does not apply to everyone and there are exemptions to it, but it can basically be divided into two parts.
- Taxes on Individuals: First are the taxes levied on individual citizens, residents, and tourists and these include income taxes, tourism taxes, municipal taxes, inheritance taxes, etc.
- Taxes on Businesses: The other types of taxes are issued to companies and businesses operating in the country and these include, value-added taxes, corporate taxes, excise taxes, customs duties, etc.
All these different types of taxes are explained in detail below.
Types of Taxation in UAE
Now you already know the two broad categories of taxes, i.e. the individual taxes and the business taxes, but there are specific types of taxes, and here is everything you need to know about them.
Value Added Tax in UAE
Value Added Tax was introduced in 2018 in UAE and stands at 5% for all businesses on the mainland that are involved in any kind of supply chain management. Even though this tax applies to businesses, ultimately it is the consumers of the products that these businesses help produce, who pay the tax.
Corporate Tax in UAE
Corporate Tax in UAE was introduced in 2023 and stands at 9%. It is levied on businesses that have annual net revenue of over AED 375,000. However, it is 15% for some businesses, under the global minimum corporate tax agreement, and businesses that are exempt from this tax are discussed below.
Excise Tax in UAE
Excise tax in UAE is levied to curb the consumption of products that are deemed harmful. It is levied on carbonated drinks and drinks with added sugar sits at 50%. While on Tobacco and alcohol that excise tax is 100%.
Custom Duties in UAE
Custom duties are relative to the value of the goods being imported and are quite low in UAE for most products as they are only 5% of the value of the products. However, on Tobacco and alcohol, the customs duties are at 100%.
Municipal Tax in UAE
Municipal tax does exist in UAE, however, there is no fixed rate for it and varies in every emirate and jurisdiction. For example, in Dubai, there is a 5% rental income tax on residential properties and 10% on commercial properties, whereas in Abu Dhabi it sits at 3% for residential and 5% for commercial properties.
Tourism Taxes in UAE
Tourism tax is levied on tourists who stay in restaurants, hotels, resorts, etc., and is included in the bill paid. The taxes and fees vary in different emirates, as well as on the level of accommodation. Generally, hotel tax is around 10% while the tourist fees are around 6%.
Taxes not levied in UAE
Income tax is levied on individual salaries and dividends but as of right now there is no income tax in the UAE. Similarly, there are countries that charge inheritance tax as well, but again that is not applied in UAE.
On Whom Does the UAE Tax System Apply?
Tax compliance in UAE applies to both individuals residing in the UAE and businesses operating in the UAE. However certain exemptions exist for both and we will discuss this later on. But when it comes to individuals both citizens and foreigners with a residential visa are automatically included in the tax bracket.
How does the UAE Taxation Residence Certificate?
Foreign individuals and businesses who have to pay taxes in their home country can obtain the Taxation Residence Certificate which certifies that the person is a tax resident in the UAE and as such he can take advantage of the double tax treaties that the UAE has signed with other countries.
The Taxation Residence Certificate is issued by the Ministry of Finance and helps either reduce the tax or allow total exemption and the requirements are as follows.
- The person needs to have a residence visa and has stayed in UAE for at least 180 days.
- The person either owns or rents a property in the UAE.
- The person has registered with the Federal Tax Authority.
- The business has been incorporated in the UAE.
- The business has been operating in the UAE for over a year.
- The business is not a branch of a foreign company.
To get the certificate you need to submit a number of different documents like
- Copies of valid visas and passports.
- Rental agreements or deeds to a property.
- Salary slips to confirm income.
- Bank statement for the last 6 months.
- Trade License for businesses
- Entry and Exit stamps to confirm the length of stay in UAE.
Tax Exemption in UAE for Businesses
When it comes to tax exemptions for businesses in the UAE, the biggest one is for businesses operating in the free zones as they don’t have to pay both the value-added tax and the corporate tax, except under certain conditions like companies may have to pay VAT despite being on the freezone, when they trade with companies on the mainland.
Similarly, the corporate tax only applies to certain kinds of businesses, and companies operating in the oil and gas sector. Companies that are involved in the extraction of these resources are exempt, while others in the same sector have to pay the tax.
