Dubai is considered a tax-free city because the UAE government does not impose any income tax on corporations and individuals. However, foreigners who are registered for taxes in other countries but making profits in Dubai may be required to pay certain taxes. Nonetheless, Dubai has also signed different double taxation agreements with other countries to reduce the taxes applied to foreign nationals during the repatriation of profits to their home countries.
How Does the Taxation System Work in Dubai?
- The Dubai taxation system follows a set of tax decrees issued in 1969 as well as other tax laws issued by the UAE government in 2018, such as the introduction of the Value Added Tax (VAT) and the excise tax
- The VAT and the excise tax have to be paid by Dubai companies electronically on the UAE Tax Authority website
- The Dubai government also plans to introduce a new corporate tax in the near future
- The tax legislation in Dubai also governed by more than 100 different double tax agreements signed by the UAE to provide various tax exemptions or reductions on certain incomes to local and foreign citizens and enterprises
The Value Added Tax (VAT) in Dubai
The introduction of the VAT in Dubai in 2018 is one of the most important changes in the UAE’s taxation system. The VAT is applicable at a national level in the following manner:
- The VAT is collected by the companies in Dubai, but it will be imposed on the final consumer
- The 5% VAT rate established in Dubai is one of the lowest in the world
- There is also a 0% VAT rate available for Zero-rated items, such as goods and services exported to outside the GCC, international transportation, gold/silver of 99% purity, the supply of certain education and healthcare services, and more
- Registration for VAT is applicable to all companies incorporated or to be incorporated
- VAT-registered companies can claim refunds from the Dubai tax authorities based on certain conditions
- The tourists and visitors to Dubai can claim VAT returns on the goods they purchase during their stay in Dubai
- Exemptions of VAT are applicable to the supply of some financial services, residential properties, bare land, and local passenger transport
The Excise Tax in Dubai
- The excise tax was introduced in Dubai in 2017
- It is an indirect tax levied on goods harmful to human health, such as carbonated and energy drinks, tobacco, and related products
- There is a 50% excise tax rate for carbonated drinks and 100% for energy drinks and tobacco
Corporate Taxes in Dubai
- The corporate tax is imposed on the income generated by a company in a tax year (mostly, coincides with the calendar year)
- Apart from the UAE taxation system, Dubai has its own corporate tax legislation that imposes certain taxes on companies operating within the Emirate. However, these taxes apply only to gas and oil companies and branches/subsidiaries of foreign banks operating in Dubai
- Gas and oil companies operating in Dubai are required to pay a 55% tax rate on the company’s profits
- Branches of foreign banks operating in Dubai are required to pay a 20% tax rate on the taxable income
- There are no withholding taxes levied on remittances of dividends, interests or royalties abroad
Taxes in Dubai Free Zones
- Dubai Free Zones offer various tax incentives to foreign entrepreneurs looking to do business in a low tax environment
- Most free zone authorities offer income tax exemptions to corporates for periods up to 50 years
- There is no charge on the repatriation of profits from free zones to other countries
- There are no withholding taxes or capital gains levied in any Dubai free zone
Other Taxes in Dubai
Other indirect taxes levied by the Dubai tax authorities are as follows:
- A 10% municipal tax is applicable to hotels, entertainment facilities, and rental of commercial spaces (offices and warehouses) in Dubai
- A 5% municipal tax is levied on the rental of residential property in Dubai
- Certain taxes on utility bills are charged by the Dubai Electricity and Water Authority. A road toll as exists
- Bringing or purchasing alcohol by foreign citizens in Dubai is subject to different tax rates
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