Municipal tax in Abu Dhabi. Taxation system in the UAE. Are there taxes in the UAE?

Most countries in the world replenish their budgets through taxes, which is considered the norm. But there are states that do not have most taxes, no matter whether you are a resident or not. Where is this tax haven? Q Of course, it is impossible to completely stop paying taxes in Dubai, but not in such large amounts. What this means, we will now understand.

Opening a business

Having opened our business in the Emirates and started working, out of habit, we begin to wait for the arrival of the tax inspector, or at least a notification by mail. And he’s still not there. And it won't! And all because of the peculiarities of the tax system of the United Arab Emirates. According to them, everything you and your employees earn goes to your bank account without deductions.

And don't let this surprise you. You have already paid it, only in a veiled manner. When registering a company, you paid the cost of a license in the amount of 5-6 thousand dollars, why not tax? And every year you will renew it by paying the same amount. So much for no taxes!

What taxes are there?

But if you compare taxes in Dubai and in most countries, you will not find the following types of payments:

• on the income received;
• for capital gains;
• there is also no dividends;
• on royalties;
• there are no deductions from wages;
• for import and export if activities are carried out through free economic zones in the UAE;
• no asset tax;
• exempt from taxes and interest.

When registering a business, you will not find any quotas or trade restrictions, and there is no financial control here. So now it’s clear why foreign investors are so eager to come to the Emirates. After all, it makes no difference whether you are a resident or not. The tax system is the same for everyone.

But this was the case until January 1, 2018. The decline in world prices for “black gold” led to an economic recession in Arab countries in the Persian Gulf region. This forced the countries to sit down at the negotiating table on the introduction of VAT as a new source of filling the treasury.

For the period 2018-2019 The value added tax rate is only 5%. Saudi Arabia and the UAE introduced the tax on January 1. But 5% is still the lowest compared to many countries in the world. With the introduction of VAT, countries are forced to develop and introduce a legislative tax framework, as well as tax inspectors who will monitor the implementation of the law. Of the Persian Gulf countries, only Qatar refused to introduce the tax, because its reserves, built on gas production, were not affected by the fall in oil prices.

How else can the UAE attract foreigners?

It’s hard to believe, having found yourself in the present splendor of the Emirates, that half a century ago there were small fishing villages where people lived on the brink of poverty. But oil reserves were found, and the country began to develop. Although the wisdom of the rulers in conducting politics and economics also played a role. The emirs themselves are interested in attracting foreign entrepreneurs.

What other benefits do businessmen receive by organizing a business in the United Arab Emirates:

• An enviable location: the country is conveniently located at the crossroads of most trade routes. And the distance to many capitals (Moscow, London, Hong Kong, etc.) is approximately the same. Which reduces the flight time to them.
• Seaports and international airports allow a business person to reach the desired point or send cargo to the desired location.

• The rapid development of the economy suggests that Abu Dhabi and Dubai will soon begin to actively push such “monsters” as Delhi, Moscow, London, etc. out of the economic arena.
• The Emirates consist of 7 principalities, each of which has differences in relation to foreign companies - the conditions for their registration, conducting business, etc. This allows you to choose the area where the conditions will be better for your business.
• More than 35 free economic zones in the UAE allow you to register a company without local participation. The business is 100% yours, and when you receive a residence permit, you will also be exempt from export-import tax. You also decide for yourself whether to make the company offshore or onshore.
• There is no division into residents and non-residents. All you have to do is follow the laws, and your business will be supported in every possible way.
• You can freely become the owner of luxury real estate at a lower price compared to other countries. At the same time, real estate tax - 4% of the cost is paid once. Simultaneously with the purchase, you become the holder of a resident visa with the right to stay in the Emirates for 3 years. The same visa is issued when opening onshore companies.
• Tax flexibility and the absence of most tax deductions make the UAE very attractive for building a business.

Now for a little bitterness. Doing business in the UAE exempts you from many taxes in this territory. But in the country of which you are a citizen, without living there, you will have to pay the necessary taxes. Although the Emirates has currently signed an agreement with almost fifty countries on the abolition of double payments if business is conducted in the UAE.

Where's the catch?

You have received basic general information about tax payments. But if you plan not only to conduct business here, but also to reside permanently, then it is better to know about these daily fees in advance:

• Thus, public transport here is extremely poorly developed, because almost all locals have a car. And travel on the main roads of the country is paid. For example, in Dubai you will be charged about a dollar for each trip.

• In Europe this is normal practice, but residents of Russia are very surprised by the 10% of the cost of dinner at a restaurant included in the bill.
• Although taxes in Dubai and other regions of the country are not paid on rental housing, maintenance services, water supply, air conditioning, etc. are paid, the fee for this is already included in your bill.

But in any case, all of the listed fees and some others will be lower than in most other countries in the world.

Industries that pay taxes

And if everything is more or less clear with taxes in the UAE for individuals (there are practically none). That is in relation to legal entities. individuals, everything is not so clear. First of all, this is due to the federal system of the state, where the authorities of any emirate can set tax payments independently. True, this right is used extremely rarely, which is why it can be argued that there is almost no tax burden for companies. There are a few exceptions to this type of activity. Here they are...

Oil industry

The largest tax deductions from 55 to 85% of operating revenue are levied on foreign companies engaged in oil production and refining. Moreover, the amount of tax depends on the agreement concluded between the government of the emirate and the company.

This “unfair” taxation is due to the fact that the UAE is thriving precisely because of oil production, and the government is well aware that this is an industry with super-profits. But the tax is paid if the company produces and processes oil in the Emirates. If the business is international, then it is exempt from payment.

For local companies registered in the emirate of Dubai, the so-called excess profit tax has been introduced. Moreover, the rate grows progressively with increasing profits:

• 10% if profit varies between 1-2 million dirhams;
• 30% - profit 2-4 million dirhams;
• 40% - 4-5 million dirhams;
• 50% - more than 5 million.

Foreign companies do not have to worry about this tax, since it is imposed only on local ones.

Banking sector

This is another type of activity that is subject to tax. In Muslim countries, lending money at interest is considered a great sin. Therefore, in the UAE, banking services are divided into two types: conventional, based on international standards, and based on Shariah principles.

The tax rate in the banking sector is about 20% of operating profit in emirates such as Abu Dhabi, Dubai, Sharjah and Fujairah. And it makes no difference whether it is a foreign or local banking institution. In other emirates, the rate varies both up and down.

Travel business

Another area in which there is a mandatory income tax is tourism and entertainment, as well as commercial real estate. Thus, they pay 17% of profits, entertainment establishments - 5%. And owners of commercial real estate pay taxes of 10%.

In 2014, the UAE introduced the concept of “tourist tax” in three emirates. In Dubai and Ras al-Khaimah, its value depends on the hotel category, and in Abu Dhabi it is fixed and equal to 15 dirhams per day. This amount is paid not by the hotel owners, but by the tourists themselves at the time of check-in for the entire stay. If the length of stay is shortened for any reason, the overpayment is not refunded.

Also, tourists in Dubai, and indeed other emirates, when checking into a hotel, must be prepared to make a deposit. It has nothing to do with taxes in Dubai in hotels, but is just a guarantor of your decency. The spread in the amount is very significant and depends on the star rating of the establishment. Over a period of 7 days, you can be charged from $50 to $600. But if you speak the language and have the gift of persuasion, then you can agree with the hotel owner not to pay a deposit, but simply empty the minibar and turn off the telephone in your room.

But the UAE is only a union of emirates, where each monarch has the right to amend laws and issue his own decrees. Therefore, the Sheikh of the Emirate of Ajman signed a decree that from July to the end of December 2018, the tourist tax is reduced from 10 to 7%. Similar decrees were issued in the emirates of Dubai and Abu Dhabi, where the fee for each night was reduced from 15 to 10 dirhams.

Let's sum it up

From year to year, rumors are spreading that this tax paradise will soon end, and tougher treatment of foreign companies will begin. But there have been no concrete actions yet. Yes, the leaders of the emirates understand that foreign companies bring significant revenue to the treasury. Start strangling the entrepreneur with taxes, businessmen will pack their bags and leave for other countries, more pleasant and loyal.

So the UAE will remain a tax haven for foreign businessmen for a long time. And you have a chance to take advantage of this and open an offshore company here.

Speaking about the tax system operating in the Emirates, it should be noted that all the advantages and beneficial differences from other similar jurisdictions are based on the ongoing state systemic policy. The Emirates government has declared the creation of favorable conditions for business and the attraction of foreign investment assets into the local economy as a top priority for government policy.

Economic stability as a guarantee of success

In recent years, the Emirates economy has shown unprecedented rates of development and growth, and this despite the economic crises that are shaking the whole world. Today, real estate in the UAE is in great demand, serving as an effective investment tool for foreign entrepreneurs. Every year, many residential properties, shopping and office complexes, hotels and entertainment centers are put into operation in the UAE. It is no secret that real estate in the UAE is sold out even at the design and construction stage.

The United Arab Emirates is increasingly being considered as the optimal platform for registering a foreign representative office of a company, and thanks to its relatively cheap energy resources, the UAE is ideal for installing production lines.

Modern developed infrastructure, the presence of international transport hubs, unlimited logistics capabilities, high standard of living and security - all this together is a good addition to the favorable fiscal policy of the state. It is not surprising that the UAE attracts potential investors from all over the world.

State fiscal policy and taxation

The fiscal government policy of the United Arab Emirates excludes direct taxation of residents, and the budget revenue is generated through indirect fees. It is important to note that tax benefits apply to both legal entities and individuals. Among the characteristic differences of the UAE fiscal system is the absence of mandatory social payments.

The absence of income taxes for individuals attracts foreign qualified personnel from all over the world to the local labor market. Every year there is a steady increase in the number of foreign companies and migrant workers registered in the Emirates.

The current economy of the UAE is not only the oil and gas sector and expensive real estate, first of all, it is the financial and banking sector, tourism and international trade, industry and the entertainment industry. Today in the UAE there are conditions for business development in any economic sector.

Tax exclusions

However, the UAE fiscal legislation defines certain types of activities that are not subject to tax benefits. Thus, corporate taxes are imposed on companies engaged in the banking and oil and gas sectors of the country's economy. It is worth noting that the oil and gas sector served as the foundation on which a prosperous state with a diversified and developed economy was built. On average, the corporate tax rate in this economic sector is about 50-55%.

As for the banking sector, everything here is connected with the peculiarities of the Muslim worldview, when providing funds at interest is considered an unrighteous activity. Which, however, does not prevent the Emirates from having the most modern and advanced banking system in the region. The national banking sector is represented by both local and foreign banking institutions. For foreign banking institutions, the corporate tax rate is about 20-22%. For comparison, we can say that interest rates on banking products offered in the Emirates are much more profitable than similar products in Europe.

Additional opportunities for tax optimization

The Emirates government is doing everything possible to make potential foreign investors feel as comfortable as possible in the local market. A striking example is the government’s initiative to provide opportunities for legal optimization of the tax base at the international level. This became possible thanks to the conclusion of bilateral international agreements with a number of countries aimed at preventing double taxation.

Real estate in the UAE and taxation

Since one of the effective investment instruments is real estate, the state has taken care of this too. In addition to the fact that foreigners are allowed to acquire full ownership of real estate in the UAE, tax benefits and concessions are also applied to income from real estate.

For example, in Dubai, when purchasing real estate, only a one-time registration fee of 4% of the property value is paid. In this case, this fee is paid jointly by both parties to the transaction - 2% each. Income from rental of residential real estate is taxed at only 5%, and for commercial real estate, the rate is 10%.

Opportunities for international companies

The specialized free economic trade zones that operate in the Emirates deserve special attention. This is a kind of “pilot” project of the state, which has proven its economic feasibility and has become the real pride of the Arab economy.

All international companies registered in the territory of such specialized zones are fully exempt from income taxes and other corporate fees. The main advantage of such zones is the opportunity for 100% ownership of the company by foreign citizens, which is unacceptable when registering a local company. In addition, international companies are guaranteed the possibility of hassle-free withdrawal of investment assets and the complete absence of state currency control.

Free economic zones are optimal sites for creating a reliable production base. To optimize taxation and register a company, it is enough to obtain a service, industrial or trade state license.

There is no doubt that a business armed with all the competitive advantages available in the United Arab Emirates is simply doomed to success and has unlimited prospects for development.

The tax system is the main source of income for all world governments, and tax disputes have always been a key issue for the presidential election campaign in any state. At the same time, there is still a state where there is no need to pay taxes on income received and dividends paid. There is also completely no taxation of both non-residents and residents living in the country.

Such a state is the UAE, a country with high GDP per capita, and there is almost no tax burden here. In the UAE you do not have to pay taxes; Dubai has all the advantages for doing international business. Here we have all the resources to turn the most daring business projects into reality. Modern logistics, a large number of office premises of any class, accreditation of many large international companies make Dubai very attractive to numerous foreign investors.

The main advantage for business in Dubai is the specifics of local taxation. It can be firmly stated that Dubai is a zero tax rate for almost all types of businesses with very few exceptions.

Today, the UAE has bilateral agreements with many countries around the world. Such agreements also avoid double taxation. This, in turn, makes businesses operating in the UAE quite profitable.

The answer to the question of why Dubai can be attractive for business is a special favorable tax regime. The specificity is the complete absence of taxes, unlike other developed countries. For example, there is no individual income tax for individuals. If in other countries an employee pays tax based on salary, then in the UAE such tax is also not levied. This applies to both income tax and taxes on other types of income of individuals - interest, dividends, inheritance, gift, etc.

Regarding the corporate tax, which is paid by legal entities on their profits, in the UAE, such tax is paid only by those companies engaged in the petrochemical industry and banking institutions. Representatives of the banking sector and oil companies doing business in the UAE pay corporate income taxes. However, this applies only to those companies that operate directly in the local market. If the company, for example, is an international oil trader, then taxation also does not apply.

Speaking about taxes, Dubai and the economic benefits of this country, it is necessary to note such a phenomenon of the Dubai economy as free economic zones. Companies operating in such zones are completely exempt from tax and customs duties, and such companies are also guaranteed the opportunity to repatriate investment assets.

Such companies can operate not only in the FEZ, but also outside the UAE. At the present stage, many and medium-sized large international companies are interested in opening representative offices or separate companies in Dubai.

Based on the latest financial reports from experts, the tax laws of Dubai and the UAE as a whole are rated as one of the most effective for doing business around the world. The economic attractiveness of states is assessed based on three main quantitative indicators:

1. The maximum level of taxation rate for personal income.
2. The maximum level of taxation rate for the income of companies and corporations.
3. The total amount of tax payments as a percentage of GDP.

Dubai occupies a leading position in all three indicators. The state's favorable taxation, strategic location and developed infrastructure have made it one of the largest business centers in the Middle East.

Current taxation in the UAE:

• Income taxes – complete exemption from such fees;
• Value added tax – 5%;
• Capital gains taxes also do not exist;
• Taxes on dividends - this type of income is taxed only in the territory of the states where this income was received; In the UAE - no
• Royalty taxes – complete exemption from such fees;
• Taxes on interest – complete exemption from such fees;
• Withholding taxes - complete exemption from such taxes;
• Taxation through deductions from wages is not applied;
• Taxes are not levied on the export and import of goods if the activity is carried out through Free Economic Zones;
• There is no asset tax at all.

The UAE completely lacks quotas, trade restrictions and financial controls for most activities, which is what attracts more and more foreign investors here.

The local currency is pegged to the US dollar and is freely convertible.

The main advantages of free economic zones in Dubai and other Emirates are freedom from tax deductions. Companies operating in a free economic zone in the UAE are completely exempt from paying corporate tax. And company employees and other individuals do not pay tax on their income and wages.

The UAE is also distinguished by a modern and developed banking system that can provide a solid base for existing businesses. Dubai is deservedly recognized as an international center of business and business relations. Opening your company or representative office in the UAE will give your business a new impetus for development and expansion.

In recent decades, the United Arab Emirates has constantly strived to prove to the whole world that everything here is the biggest, the best and the highest. Thanks to this, many people know about the bulk islands, the tallest skyscraper and the best hotels that are located here. At the same time, taxes in the UAE also deserve close study, because the existing fiscal system there is radically different from generally accepted norms of world practice. Without a doubt, decades from now it will become the object of study by economists regarding the appropriateness of the path that the country's authorities have chosen.
The vast majority of government revenues still come from oil sales, but the state's economy is quite diversified. Despite the fact that at the beginning of the 80s of the twentieth century, more than 70% of the UAE’s GDP was generated by the oil industry, as of 2016, the service sector occupies more than 50% of the GDP structure and its part is growing steadily. In this context, the tax policy pursued by the state will become clearer, and the answers to the questions discussed in the article will be more logical.

Are there taxes in the UAE?

For a person who grew up in the post-Soviet space, the issue of tax discipline has always seemed not the most important. After all, they have to be paid, but at the same time there is always the possibility of solving such a problem at lower costs. But for the average resident of an Arab country there is no such thing as taxes in the UAE. That is, he can go to work, engage in productive activities, at the end of the month receive a material reward for this, and no payments to the state will be withheld from it.
Therefore, in relation to individuals, taxation in our usual form does not exist at all. Companies operating in the country do not pay income tax in the UAE on the salaries of their employees, even if they are foreigners. However, it is worth understanding that this does not automatically mean that no payments will be withheld from the employee’s income. For example, a qualified specialist will certainly not agree to work without health insurance, so wages will be reduced for such expenses. Although, of course, this is nothing more than the voluntary desire of each person, and the state itself does not oblige to bear such expenses, unlike the vast majority of other countries in the world.
At the same time, with regard to legal entities, not everything is so simple. Initially, you need to remember that the UAE is a federal state, which includes 7 emirates. At the national level, VAT, income tax in the UAE and other fiscal payments widespread in other countries of the world are not established. However, this does not prevent local authorities from setting taxes on their own. At the same time, they practically do not use this right, so by and large, there is no tax burden as such for companies in the UAE, with a few exceptions. Thanks to this, the country quickly became the financial center of the Middle East.

What taxes can be levied on legal entities?

The main criterion is the industry in which the company operates. If it is engaged in banking services or extracts/refines oil in the UAE, it will be required to pay income tax.

• For oil industry enterprises, the rate is set individually depending on the emirate in which the enterprise is registered. Most often it ranges from 50 to 80% and still allows the UAE oil industry to generate consistently high profits at any energy price.
• Regarding organizations in the banking sector, the income tax rate is also set individually in each emirate, but is approximately 20%.

In fact, only these two categories of businesses are subject to fiscal payments, the level of which generally corresponds to the level of developed Western countries. And even then, there is always the opportunity to choose more favorable conditions in another emirate.
There is also a compensatory tax on excess profits of local companies registered in Dubai, which is not levied on foreign enterprises. His progressive rate increases with increasing profits:

• 10% - in respect of profits from 1 to 2 million dirhams;
• 30% - in respect of profits from 2 to 4 million dirhams;
• 40% - in respect of profits from 4 to 5 million dirhams;
• 50% for profits over AED 5 million.

It applies to a small number of companies, and foreigners who decide to optimize the level of tax payments do not have to worry about it.
The last group of mandatory fiscal payments at the local level is payments from hotels, entertainment establishments and commercial real estate, for which the income tax in the UAE is:

• for hotels - 17%;
• for commercial real estate - 10%;
• for entertainment establishments - 5%.

Is the UAE really a tax haven?

If we compare taxes in the UAE with the fiscal burden of most offshore companies, then in fact this Arab state is preferable as a tax haven. Indeed, thanks to the many treaties on the elimination of double taxation, a huge number of Western companies have their representative offices here to minimize the level of tax burden.
It is worth adding to this that in the UAE there are more than 20 free economic zones in which a foreigner can 100% own a business, and the state will not restrict him in the movement of capital, the use of profits and will not impose any taxes. Thanks to this policy, the authorities strive to attract the maximum number of actually functioning businesses to the country.
However, this situation is not favorable for all companies. The fact is that when registering a business in one of the emirates, a standard fee will be paid, which, depending on the type of industry and the decision of the local emir, can range from 1 to 10 thousand US dollars. This fee will be charged annually as a symbolic reward for avoiding taxes. Therefore, for small companies, the costs of registering and operating under UAE tax laws can sometimes exceed their annual profits.
Employees of the Prifinance company are ready to help everyone figure out whether the tempting tax conditions of the UAE are worth registering their business activities there.

In the latest Index of Economic Freedom, compiled annually by The Heritage Foundation and The Wall Street Journal, the United Arab Emirates' tax policy was rated unchanged at one of the highest levels in the region and the world. In the financial freedom category, the UAE scores 99.9 points annually. The "financial freedom" of a country in the index shows the degree of tax burden. This includes direct and indirect taxes. There are three main quantitative factors:

1. Maximum tax rate on personal income

2. Maximum corporate income tax rate

3. Total tax revenues as a percentage of GDP).

You can see more about the UAE in the Economic Freedom Index.

Analysts note that it was the tax system that turned the UAE into one of the largest financial centers in the Middle East.

There is no uniform tax legislation in the UAE. Each emirate sets its own tax system.

There are no direct taxes in the UAE. The state receives money from the indirect tax system.

Not in the country:

Personal income tax

Capital gains tax

Corporation tax

Income tax

- income tax withheld from wages

And some others

Different emirates have a system of corporate taxes in different areas of activity.

Thus, the entire oil industry and banking sector pay both income tax and capital tax, as well as corporate tax and profit tax.

Another object of income tax is companies with large cash turnover. The tax rate directly depends on the level of income:

— 10% — on profit within the range of 1,000,000 – 2,000,000 dirhams;

30% - on profit within the range of 2,000,000 - 4,000,000 dirhams;

40% - on profits within the range of 4,000,000 – 5,000,000 dirhams

50% - on profits over 5,000,000 dirhams.

Relatively high taxes are in the hotel sector - 17%, and in the commercial real estate sector - 10%.

The UAE has a “5% circle” – several taxes that add up to 5%. This:

Housing tax

Hotel service tax

Entertainment tax

The state has signed treaties on the avoidance of double taxation with 45 countries. The dirham is freely convertible into any currency and is pegged in value to the US dollar.

In the United Arab Emirates there are more than ten free economic zones (FEZ):
Ahmed Bin Rashed Free Zone
Ajamn Free Zone
Dubai Airport Free Zone
Dubai Gold and Diamond Park
Dubai Internet City
Dubai Media City
Fujairah Free Zone
Hamriyah Free Zone
JebelAliFreeZone
Ras Al Khaimah Free Zone
Sharjah Airport International Free Zone

Each free economic zone is regulated by a separate government agency that registers businesses and issues licenses to them in the UAE.

Among the main advantages of free economic zones is tax freedom: enterprises registered in a free economic zone are exempt from corporate taxes for 15 years. The law also provides for the possibility of extending this regime for another period of 15 years. Employees of enterprises are exempt from all taxes on personal income.