One of the main attractions of the United Arab Emirates (UAE) is the near tax-free status as far as foreigners are concerned. There are no income tax rules for employees in the country and even corporate and inheritance taxes are also non-existent. It was only in January 2018, that the country introduced the VAT regimen. This tax on goods and services sold is kept at a low rate of 5%. This apart, there is an excise tax on certain products considered by the government to be bad for human beings or the environment, for example, energy drinks and tobacco. Now, let us have a look at the federal taxes in the UAE.
Individual Tax
The GCC nationals, including UAE citizens, employed in the UAE have to pay a social security tax at the rate of 17.5%. The UAE nationals are required to pay 5% (with an automatic deduction off their paycheck) and the employer pays the rest ie 12.5%. Social security obligations are binding on employees of companies and branches registered in a free trade zone (FTZ) also. Non-GCC nationals are free from social security initiatives.
Corporate Tax
Corporate taxes are applicable only to oil companies and foreign banks in the UAE. As for the 45 free zones in the UAE, these are kept away from the ambit of this tax for a particular period that can be extended as well. Similarly, there exists no provision to impose capital gains taxes, unless the company is taxable under another income tax. But, the norms regarding corporate tax are going to change from 1 June 2023, when there will be a federal corporation tax at 9% for businesses with net profits of AED 375,000 or more.
Double Taxation
The UAE is widening the Double Taxation Agreements (DTA) and Bilateral Investments Treaties (BIT) network to trigger more strategic global partnerships. The country has secured close to 193 DTAs and BITs with the objective of doing away with or minimizing taxes on investments and profits from direct and indirect taxes.
Tourist Facility Tax
Hotels, restaurants and resorts might levy these taxes:
10% on the room rate
Service charge @ 10%
Municipality fee @ 10%
City tax @ 6–10%
Tourism fee @ 6%
Property Transfer Tax
In the UAE, a transfer charge is applicable if a property gets transferred to another person. This changes according to the Emirates, in Dubai it is 4%. Likewise, as per each emirate, the rates would vary. Despite the buyer and seller sharing the obligation, the onus of paying the transfer fee is more on the former.
