Tax system in Dubai – history and useful information

The UAE Federation was formed in 1971, and now it consists of seven Emirates. All the Emirates were vested with the right to pursue autonomous internal policies. Each Emirate (including Dubai) has its own laws on income taxation, however, these decrees are applied only to oil, gas and petrochemical companies and branch offices of foreign banking institutions. All the types of business and personal income received in Dubai are exempted from taxation. This tax-free rule is applied to all the forms income, interests, dividends and other types of capital gains of any nature and passive or active investment.

The companies registered and operating on the territory of Dubai have no reasons to worry about taxation. According to the annual Tax Analysis Report, the average time spent in Dubai for financial tax reporting is about 4 hours per year and that is due to the simplicity and transparency of the Dubai tax system.

The economy of the UAE and Dubai, in particular, is considered to be the region’s most liberal regarding taxation and most diversified according to the GCC official data. The results of the comparative analysis of the 15 European and Middle Eastern countries and their taxations proves that the UAE (including Dubai) is the only country with no taxation on the majority of types of income. Only major oil and gas companies and branches of international banks are liable to taxation.

Dubai taxation system – basic rates.

Dubai offers a unique taxation environment – the local authorities impose almost no taxes. As for VAT, it was introduced on January 1, 2018, and its basic rate is 5%. But there are some preferences, for example for offshore companies, medical institutions, real estate market, and export.

Dubai local income tax (proposed in 1969) has never been levied, and the UAE Government has no plans to implement it. The foreign trade is virtually free of tax, and there is no currency exchange regulation on the remittance of profits and capital repatriation. Moreover, the companies and legal entities registered on the territory of the specialized FTZs in Dubai can take the full advantage of guaranteed tax incentives.

A tax audit is a mandatory requirement for most of the onshore businesses in Dubai, whereas financial reporting to government is not required. The exception is made for foreign banks and those involved in the oil, gas and petrochemical sector. However, this is applied only to the companies in these sectors that carry out their activities directly on the territory of Dubai (not free zones). In other cases, there is no taxation at all.

In order to prove the advantages of the Dubai tax environment, let us compare the most beneficial jurisdictions in terms of taxation. This table gives a clear vision of the reasonability of starting a business on the territory of the UAE.

Jurisdictions Criteria
Dubai
Belize
Switzerland
Corporate tax
0%
0%
- companies under Holding Company regime — 7.83% - other companies — 11.5%-24.2% (combined Federal, Cantonal and Municipal taxes)
Withholding tax on dividend payments to foreign shareholders
0%
0%
35%
VAT standard rate
5%
12,5%
8%
VAT registration threshold
AED 375,000
BZD 75,000
CHF 100,000

Some features of the Dubai tax system

Although they have no taxes on profits for the vast majority of companies in Dubai, still there are some industries where local authorities levy taxes: oil industry, the banking sector, and hotel and restaurant business. For example, foreign companies engaged in oil and gas extraction, as well as in the production of hydrocarbons in Dubai, are taxed at a rate of about 50% of revenue. Branches of foreign banks are also taxed. Thus, in the Emirate of Dubai, foreign banks pay a corporate tax of 20% from operating profit. Also, there are taxes paid by hotels and restaurants in Dubai; this tax will be included in the bill for the services provided (10% in Dubai).

So there are some taxes in Dubai, but for a limited number of enterprises.

There are also some indirect taxes and fees in Dubai that are paid by those who live and work here. For example, in the city of Dubai, they pay a fare to ride on the main road, a fee of 4 dirhams is charged when going under the SALIK toll gate (this can hardly be named a tax, but still).

As we have already noted, when visiting hotels or restaurants in Dubai, 10% tax of the total cost of a dinner or a room is included in the bill.

There are no taxes on rental income In Dubai, but owners pay for building maintenance, air conditioning, and water supply, which already include fees.

Despite all of the above mentioned, Dubai as a whole can be considered a tax-free jurisdiction that is perfectly suited for doing business. All the fees here are insignificant compared to those in other countries of the world.

If you need any other info on the Dubai tax system – please feel free to get in touch with us. Use the contact us form and learn all the features of taxation in Dubai and its practical aspects and advantages of local taxation for your business.


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