The United Arab Emirates (UAE) has a low tax regime to encourage business growth and investment. There is no personal income tax regime in the UAE with exceptions for oil companies and foreign banks. The main taxes are corporate taxes, import duties and value added tax (VAT).
Corporate Tax
UAE corporate tax is levied on oil companies and foreign banks at rate of 55% and 20% respectively. Other companies are not required to pay corporate taxes currently.
Import Duties
Import duties are imposed by UAE at 5% for most products. Some items like tobacco, alcohol and pork meat have higher import duty rates upto 100%.
Value Added Tax
Value Added Tax (VAT) was introduced in UAE from 1 January 2018 at standard rate of 5%. A zero rate applies on certain essential goods like medicines and designated zones like free zones.
Tax Free Personal Income
UAE does not impose income tax currently on individuals except those working in oil industry or foreign banks licensed in the country. This encourages foreign talent and investments in the country. Even citizens do not pay any personal taxes on their earnings.
Low Corporate Taxes
Corporate income tax is only applicable currently to foreign banks at 20% flat rate and to oil companies at 55% of net profit. Other organizations and entities do not have to pay any corporate taxes resulting in increased business activity.
Imports Tax Regime
Most goods imported into the UAE attract import duties at 5% of value. Tobacco, alcohol and pork meat have higher import duties upto 100% which makes them more expensive.
Value Added Tax System
UAE implemented VAT from 2018 at standard rate of 5% to increase government revenues. It exempts certain sectors like healthcare and education from VAT which keeps costs lower in these essential sectors.
Government Revenues from Oil Exports
Even with low direct tax rates, UAE earns significant tax revenues from oil companies and banks. The oil exports also contribute substantially to federal budget. This enables UAE to provide high quality infrastructure and public services.
How Taxes Compare Globally
UAE has one of the lowest tax rates globally. While average VAT rates in Europe are above 15%, UAE keeps it at 5% to stimulate business activity. Most countries also impose significant income taxes on citizens which are not there in UAE.
Key Takeaways
- No personal income tax except on oil and banking sectors
- Corporate tax only applicable for foreign banks and oil companies
- Low VAT rate of 5% to encourage business investments
- Import duties at 5% for most goods and higher for select items
- Low taxes aimed at accelerating economic growth and development
Conclusion
UAE strategically leverages low tax rates to accelerate economic prosperity and diversification. With no personal taxes and targeted corporate taxes, it aims to attract talent, tourism and investments crucial for sustainable non-oil sector growth. The economic progress enabled by judicious tax policies positions UAE as a leading global business, trade and tourism hub.
Frequently Asked Questions
Q: What is the personal income tax rate in UAE?
A: There is no personal income tax levied in UAE, except for people working in oil companies or foreign banks licensed in the country.
Q: What is the corporate tax rate in UAE?
A: The corporate tax rate is 55% for net profits of oil companies and 20% for foreign bank branches. Other companies do not need to pay corporate taxes.
Q: What is the VAT rate in the UAE?
A: Value Added Tax (VAT) in UAE is charged at standard rate of 5% from January 1, 2018.
Q: Which sectors are exempt from VAT in the UAE?
A: Key sectors exempted from VAT in UAE include healthcare, education, real estate, and international transportation.
Q: What are the import duty rates in the UAE?
A: Most goods entering the UAE are subject to 5% import duty. Exceptions include tobacco (100%), alcohol (50-100%) and pork products (100%).
Q: Do Emiratis and UAE residents need to file a personal tax return?
A: No. Individuals are not required file personal tax returns currently in the UAE.
Q: Are there special economic or free zones with different tax rules?
A: Yes. Designated economic free zones like JAFZA and DAFZA have zero tax rates to boost activity.
Q: Does the UAE have double tax avoidance treaties?
A: Yes. The UAE has signed double tax avoidance agreements with many countries.
Q: Do I need to pay income tax if I start working in Dubai on an employment visa?
A: No personal income tax will be applicable as an employee in Dubai or anywhere else in the UAE.
Q: I am a foreigner resident in Abu Dhabi. Do I need to pay taxes on my rental income from property abroad?
A: No. As a non-citizen you do not need to pay taxes currently in UAE on foreign income.
Q: I am an overseas corporation looking to set up in UAE. What taxes will I need to pay?
A: Apart from customs duties and VAT, your business in UAE would not be liable currently for corporate taxes or income taxes.
Q: What taxes do tourism and hotel businesses need to pay in Dubai?
A: Tourism sector pays 5% VAT and 5% import duties on goods. No direct taxes are imposed currently on hotel or tourism business profits.
Q: Is there any difference in taxes applicable in the Emirate of Dubai versus Abu Dhabi?
A: No major differences. All emirates follow the federal tax structure of low VAT and import duties with no general corporate or income taxes.
Q: Do Arab or GCC nationals get any special tax benefits when working in the UAE?
A: No. Both citizens and foreigners have same tax treatment with no personal income taxes and just 5% VAT.
Q: I am planning to purchase property in the UAE. Does this attract any taxes?
A: No, property purchases do not entail any transfer or capital gains taxes currently. Just 5% VAT if buying from developer.
Q: Is inheritance or estate tax applicable for assets or property in the UAE?
A: No, the UAE does not levy any inheritance or estate taxes on assets or properties passed through generations.
Q: Are sales made in UAE subject to any taxes?
A: Yes, all sales in UAE are subject to standard rate of 5% VAT unless specifically exempted.