UAE: No Personal Income taxation changes expected in the future

Currently, the possibility of imposing various taxes in the UAE is being discussed among the experts worldwide. However, the Government of the UAE disproves yet again all the rumours concerning introduction of new taxes, and in particular — the personal income tax.

Some steps were taken toward the introduction of certain remittance fees for foreign workers. However, it is not a question of the nearest future, as it requires an in-depth investigation of two major aspects: the volume of money transmissions and categories of workers liable to these fees.

The UAE is characterized by a stable and robust economy. This is confirmed by the fact that the national economy of the UAE has easily undergone the last fall in oil prices. This is owing to the diversified economy and various means of replenishing the treasury. The budget didnotsuffer 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 country's financial standing.

The GCC member states have agreed on some VAT perspectives. However, the main question “when to implement it” remains. Moreover, it is difficult to say which state will become a pioneer to implement it.

Personal income tax

The UAE is the only country with almost no taxation. Its brand of a tax-free jurisdiction is known worldwide. The Government of the UAE is not going to sacrifice the country’s tax-free reputation. For this reason, personal 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 personal 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. Besides, only ultimate consumers will be subjected to the VAT. Legal entities, in their turn will be able to receive a VAT refund. It is planned that the VAT fixed rate will amount only 5 %.

The IMF claimed that introduction of the VAT will give an opportunity to gain higher profits at a lower price. Moreover, the consequences of VAT introduction will beinconspicuous for the country with a conducive macro-fiscal environment that offers a quite loyal taxation policy and where oil market remains the main source of government expenditures refunding.

The countries of GCC have reached certain agreements, which seem to guarantee a decrease in social and economic disparities. The VAT will not be imposed on staple foods (94 items), healthcare system and educational system. Thus, the introduction of VAT will not affect the most important life domains.

Tax collection: who is liable?

Experts state that introduction of VAT will not have a detrimental effect on the ultimate consumers’ purchasing power. The influence of VAT on the business entities will be also insignificant.

However, the consequences of VAT implementation include the raise in prices and the increased managerial responsibility. Those legal entities, which are engaged in the IT sphere, will have to cope with some new requirements specified in theVAT law. Besides, the availability of a provision for implementation of VAT should be checked when signing medium and long-term contracts.

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 will not affect business entities as it deals with consumption. In fact, all the duties imposed on the business entities will be purely of an administrative nature.

It is evident that introduction of VAT will cause the price boom that will affect goods and services. Actually, the burden of a VAT cost will be placed on individuals, but it will be quite moderate; moreover, business entities will be able to lessen the influence of the VAT.

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.

On personal income or persons living in UAE – all types of income is also completely tax free.

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