The federation of the United Arab Emirates was established in the year 1971 and has become one of the most significant economies in the Middle East throughout the last years. The Federation is comprised of seven emirates, and each one of them has enforced its taxation laws. However, Abu Dhabi and Dubai are currently applying income taxes only in few sectors. The government of The United Arab Emirates does not impose income taxes on either companies or individuals residing in the country. However, citizens from other nations registered for taxation purposes in other countries. On the other hand, companies or persons who make a profit may be required to pay certain taxes in Dubai. This has made Dubai an attractive destination for both local and foreign investors because they consider taxation in Dubai enticing to business. There are recent announcements that the United Arab Emirates will begin to impose (VAT) Value Added Tax in Dubai and the other Emirates.
Income Tax in Dubai
The federal government of the United Arab Emirates does not impose taxes on the wealth of companies and individuals in the UAE; however, the ruling family of Dubai has indicated that taxation in Dubai will not be used as a means of relieving debt. However, if an individual is earning an income in Dubai, but is a tax resident of another country, he or she will be required to declare his or her income and thus, should pay taxation on it. For instance, a tax resident of the UK who owns property in Dubai and earn rental income from it, then that person will be required to declare the income on the British tax returns will have to pay tax on it. This also holds for an individual who has stayed in Dubai for more than six months but is a tax resident in the UK. Thus, the person will be not be subjected to the tax in Dubai but rather the laws and regulations of taxations in the UK. On the contrary, if an individual moves permanently to Dubai and is out for a full taxation year in the UK, then that person will not pay taxes in Dubai as per the regulations of taxations in Dubai. The case of taxation in Dubai is unique to every individual or companies, and therefore, it is advisable that one should consult accounting firms in Dubai for more information on taxes in Dubai.
The corporate taxation system in Dubai
The primary regulatory framework establishing the tax regime is the Dubai Income Tax Decree, issued in the year 1969, which states that business organiozations that deal with oil, gas, petrochemical and banking industry are liable to pay the corporate tax in Dubai. Oil, gas and petrochemical industries are subject to a flat rate of 50% tax in Dubai. However, other sectors of the foreign banks are liable to pay a flat rate of 20% tax. For those opening a company in Dubai, it is also important to know that companies will benefit from free trade zones with up to 50 years tax exemptions and no customs duties.
Corporate Tax in Dubai
Although there are no personal income taxes in Dubai, any withholding taxes on dividends, capital gains or value added taxes in Dubai; there are few other taxes in Dubai that apply to corporations. For instance, Dubai companies must pay a real estate property tax to the municipalities. Depending on the company’s status, the rate of tax in Dubai varies between 5% and 15%. Managers of business organizations in the commercial and industrial field are subjected to a 5% tax rate of their annual rent, while managers of branches of foreign banks will be subjected to a 15% tax rate. Employers on the other hand also contribute to the pension fund of public employees by paying a 12.5% tax in Dubai, and public employees pay a tax rate of 5% for the same pension funds. Services taxes in Dubai apply in hotels and restaurants certain rates that vary between 10-15% for hotel accommodation and 5-10% in restaurants.
Taxation treaties in Dubai
Tax in Dubai encompasses double taxation treaties with a significant number of countries to make the investment environment more attractive to those who want to set up a company in Dubai. The treaties have been enabled to reduce the burdens of taxation in Dubai for business organization redistributing their profits in other with more competitive tax systems. There are other neighboring countries that Dubai has signed tax treaties particularly in the middle east, Italy, Malta, Germany, the Netherlands, France, Greece, Switzerland and Spain among others in Europe. Other countries in Asia include China, Japan, India and South Korea, Germany, Canada, and Australia notwithstanding.
Apart from the traditional belief about Dubai being a tax-free emirate, there are several other levied taxes in Dubai. These are levy taxes that individuals and companies who live in Dubai pay regularly. The municipal tax in Dubai is charged at a rate of 10% especially for the municipal tax on hotel revenues and entertainment in Dubai. This means that patrons in the hotel are charged 10% more on the cost which is added to their bills. On the other hand, there are also charges on alcohol. Individual or companies who import alcohol pay 50% tax in Dubai. Moreover, there is also another 30% tax on the purchase of alcohol in Dubai according to the liquor license. Besides, except Abu Dhabi, there is 10% tax levied in the UAE on income from rentals. Taxes in Dubai are also levied by the Dubai Electricity and Water Authority, (DEWA) on utility bills.
Double Taxation Avoidance Agreements
The United Arab Emirates has also signed some DTAAs with other countries to ensure that people and companies do not pay tax to two different governments on income earned in one country. For more details about company registration in Dubai, It is important to seek advice from specialists in company incorporation in Dubai.