Dubai is a popular destination for expats from all across the globe, not just for the opportunities it promises but also for the lure of living a ‘tax-free’ life. The UAE is known as a tax-free country, but what does that really mean for those living here or for expats looking to move to Dubai? Here, we explain the ins and outs of taxation in Dubai and everything you need to know about working and living here from a taxation point-of-view.
To answer the question on everyone’s mind, yes! Dubai is largely a tax-free country with massive tax advantages for those who live and work here, but there are circumstances in which you will be required to pay taxation in some form. The UAE has been toying with the idea of introducing income tax in the country for a long time; in 2010 there were alarming headlines screaming about Dubai residents having to prepare to pay taxes but these turned out to be measures imposed by the Emirate of Dubai to collect fees from car registration, road toll and Emirates ID cards, Which is a form of taxation, but not really of any significance compared to individual earnings in the emirate.
The UAE Federal Government does not impose taxes on the wealth of companies and individuals in the UAE, and contrary to some reports, the ruling family of Dubai has indicated that Dubai will never resort to taxation as a means of relieving debt, so it is unlikely that we will see any income tax levied in the years to come. However, if you are earning an income in Dubai, but are a tax resident of another country, you may be liable to declare your income and pay taxation on it. For example, if you are a tax resident of the UK and you own a property in Dubai that you earn a rental income from, you are required to declare this income on your British tax returns and may potentially have to pay tax on it, subject to certain conditions. The same is true if you move to the UAE for 6 months to live and work here but remain a tax resident of the UK; in this case you are likely to be subject to taxation in the UK. Alternatively, if you move permanently to the UAE and are out of the UK for a full tax year, you may be able to earn a 100% tax-free salary in Dubai under the following conditions as published on the HMRC website:
- If you are absent from the UK and not employed in the UK for more than one full tax year
- You spend less than 183 days in the UK during the tax year
- You average less than 91 days a tax year during your visits to the UK for a maximum period of 4 consecutive years (normally, for tax purposes days of arrival and departure are not counted as days spent in the UK).
Each emirate has its own laws on corporate taxes for companies operating within the emirate, but in reality taxes are imposed only on the following entities:
- Foreign gas or oil producing companies dealing in oil or hydrocarbon production within the UAE. Although the tax rates are generally 55% of the company’s operating profits, they vary based on individual agreements between the company and the emirate in which it is operating. These agreements are usually confidential and rates may range from between 55% to 85%.
- Branches of foreign banks operating within each emirate are subject to corporate tax, although not all emirates enforce this law. In Sharjah, Dubai, Abu Dhabi and Fujairah, foreign banks are subject to tax rates of 20% on their taxable income. There may be sligh variations in the rate from emirate to emirate.
Furthermore, there are no withholding taxes levied on companies who remit income outwards whether it be dividends, royalties or interest.
Contrary to popular belief, there are many other taxes levied in Dubai and these are taxes that individuals who live here would pay on a regular basis. The emirate of Dubai levies a 10% municipal tax on hotel revenues and entertainment. So whenever you visit a hotel in Dubai for a stay or even a meal, 10% is added to your bill. Alcohol imports are heavily taxed – you pay 50% to bring alcohol into the country and a further 30% on purchase of alcohol (legally with a liquor license) for home consumption, which is why many people choose to purchase alcohol illegally. All the emirates, with the exception of Abu Dhabi, levy a tax on income from rentals – municipal tax of 10% is levied on the rental of commercial premises and 5% on the rental of residential premises. Abu Dhabi does not levy tax on rental incomes, but landlords do have to pay annual license fees. Taxes are also levied by DEWA (Dubai Electricity and Water Authority) on utility bills. In addition to this, Dubai has a system of road toll known as Salik, which has been set up on all major roads leading into and out of Dubai. Every time you drive across a toll road, you pay AED 4; up until a year ago there was a cap of AED 24 that could be paid out in Salik on any given day, but this cp has since been removed; you now pay toll as many times as you use the road.
Double Taxation Avoidance Agreements
The UAE has signed a number of DTAAs with countries to ensure that individuals do not get stuck paying tax to two different governments on income earned in one country. A list of countries with which a DTAA has been signed or is in process can be found here.