Personal taxes, tax rates
Individual persons who reside / live in Dubai, UAE have no taxes to be paid on income, real estate / property, or any form of income. This sounds like there are no applicable taxes at all, however this is not correct as there are some taxes in other forms - import duties on all goods imported into country from abroad, income received in form of rental income from real estate, entertainment and hotel business are also charges with some level of tax.
Citizens of UAE also contribute a minor percentage to social security paid from their income. In fact this percentage is regularly paid by employers.
Sales tax is not applicable at all, however the taxes on alcohol and other goods which are considered not in line with Muslim religion and are “haram” means “sin”.
The value added tax (VAT 5%) — often also called sales tax — is applicable in UAE from January 2018. International organizations such as International Monetary Fund (IMF) have issued recommendation to UAE to implement this tax, however this recommendation was not brought into praxis.
Effectively the only taxes paid in UAE by individuals are:
- Tax on income on real estate, effectively charged automatically and added to the utility bill of tenant, such tax is 5% from the rent.
- Sales and purchase of real estate – fix transfer fee of 4% payable by seller and buyer 50/50
- Taxation of alcohol and tobacco - purchased in restaurants or stores
- Import means Customs duties on various items – consumables and other - imported into UAE to the main land. Regular duty is on average 4%. Note – if imported to free trade zone – no customs duty is applicable.
In all Emirates of the UAE with exception of Abu Dhabi, rental income from commercial premises, as opposed to residential properties, is taxed at the rate of 10%. The tax is levied over service charge payments. So the owner of residential or commercial properties who has rental income from such properties does not have to file any yearly tax returns as the applicable taxes are automatically levied together with the service charges from the tenant.
Due to such automatic charging system this tax is regularly called in UAE “housing fee” and is automatically included in water and electricity bills for Dubai and other Emirates residents by the respective Municipality.
Property Taxes: as was mentioned above, the transfer fee / tax of 4% is applicable on the ownership transfer of the commercial and residential real estate, whereby seller shall pay 2% and the buyer is also paying 2% respectively. The tax is calculated and levied in the sales- purchase value of the property. In the event the value in the contract is below the market value – the 4% is levied on market value.
Inheritance tax and important aspects Estate Tax planning: Inheritance procedure, in the event of non-availability of testament / will, is handled according to Islamic Sharia law. However lately there is a legislation which allows to register wills and proceed the inheritance with the rules of your home country and the will. The inheritance taxes in UAE are absent.
Rich man taxes - Net Wealth / Net Worth Tax: there no such tax in UAE as the Net Wealth / Net Worth Tax in UAE. In the times when a number of various countries start to implement such tax UAE is of a definite advantage for residential purposes of high net-worth individuals.
Capital Appreciation Tax or income on shares and bonds: there is no capital appreciation tax thus all types of income on capital – no difference on its form – as increase of main capital or ы on capital – are not taxes in United Arab Emirates.
Municipal taxes – also known as municipal fees. The implication of such tax can be decided by each Emirate separately. Such municipal fees are applicable in some of the Emirates. In Dubai for example, there is 10% municipal fee which is charged on hotels revenues and business related to entertainment. There is also service charge of 5-10% applicable on food purchased in restaurants and cafeterias.
Hotels service charge of 10-15% comes on top of the charge. This is the charges of the municipality applicable to hotels and restaurants.