UAE: No Personal Income Taxation Changes Expected in the Future
According to the definition, an income tax is a direct tax levied on the profits of organizations or private entrepreneurs in almost any jurisdiction of the world. The United Arab Emirates (UAE) is one of the few countries of the world, free from income taxes (zero income tax rate), as well as some other middle east countries (Gulf Cooperation Council): Oman, Qatar, Kuwait. As for the UAE, zero income tax rates are both for local citizens and for expats, and that is one of the reasons, why this country is so popular among foreigners, i.e., the earned income of both employer and employee is not taxed here.
Currently, the possibility of imposing various taxes in the UAE (including income tax) is being discussed among the experts worldwide. However, the Government of the UAE disproves yet again all the rumors concerning the introduction of new taxes, and in particular — the income tax. Some steps were taken toward the introduction of certain remittance fees for foreign workers. However, it cannot be considered as income tax, and it is not a question of the nearest future.
A stable and robust economy characterizes the UAE. This is confirmed by the fact that the national economy of the UAE has easily undergone the last fall in oil prices. This is due to the diversified economy and various means of replenishing the treasury. The budget did not suffer any cuts, and all the planned actions were executed on-time and on budget.
Notwithstanding the successful year-end closing, these processes in the UAE oil market did not remain unnoticed. The International Monetary Fund (IMF) advised the UAE government to introduce taxation as an effective financial instrument, which can support the country's funds and make the national economy independent of the oil price volatility.
The national economy of the UAE, owing to its strong fiscal indicators and safe haven status, is resistant to any slump in prices and can easily endure a slow growth of the global economy. However, the UAE public authorities were advised to carry out some reforms in order to improve the country's financial standing. Thus the GCC member countries have agreed to introduced VAT. It was implemented in 2018; however, still, the UAE remains the country free from any income taxes.
Personal income tax
The UAE is one of few countries without any income taxation. Its brand of an income tax-free jurisdiction is known worldwide. The Government of the UAE is not going to sacrifice the country’s income tax-free reputation. For this reason, income tax implementation is put off indefinitely. At the same time, nobody can say for sure what will be the sources of the country's budget replenishment in the far future. That is why the issue of income tax introduction will be discussed more and more often.
However, experts note that the UAE Government does not consider taxation of the individuals as the main goal of the nearest future.
Income tax collection: who is liable?
Experts state that the introduction of VAT had a detrimental effect on the ultimate consumers’ purchasing power. As for the influence of VAT on the business entities, it was insignificant. However, the consequences of VAT implementation included the rise in prices and the increased managerial responsibility.
It should be mentioned that business entities are of paramount importance for the VAT regime success as they charge and collect taxes and then remit money to the respective tax departments. From this, it follows that VAT affected business entities as it deals with consumption. In fact, all the duties imposed on the business entities are purely of an administrative nature.
According to the IMF reports, the UAE tax system includes the following taxes and charges:
- Corporate income tax for foreign banks in Dubai — 20 %;
- Local municipal property tax of the renting cost — 5 %;
- Local hotel tax on hotel services — 10 %;
- Locally collected CET (for the members of the GCC) provides for:
- General rate — 5 %;
- Alcohol drinks — 50 %;
- Tobacco — 100 %.
- Charges on certain governmental services — collected by the federal and Dubai authorities.
For all other types of businesses, the corporate tax is zero. All types of incomes are also completely free form any taxes on income for those who live in the UAE.