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The United Arab Emirates - the country’s taxation system

If to compare the country tax system of the UAE with the other traditional patterns and tax systems, one can distinguish a number of features and properties. In particular, taxation in the United Arab Emirates fully eliminates a number of obligatory payments to the budget, which are withdrawn from businesses and private individuals on the territory of the other countries. Besides, the legislation of the United Arab Emirates provides for that each of the seven independent Emirates determines its tax policy mostly independently.

It is worth noting that the peculiarities of taxation made the UAE to be the major international financial and business centre in a relatively short period of time. The peculiarities of the tax regulations have become a major incentive for attraction into the local economy the significant investment inflows from abroad into a variety of business and investments areas.

The Emirate of Dubai, which has become the region's largest financial centre, and which combines business interests of many countries, can serve as the illustrative example. Thousands of branch establishments and international companies, which are engaged in production, trade, services, logistics, tourism industry and etc, are registered every year in the UAE. There is everything here to implement the most ambitious business idea or structure. The resort areas of the United Arab Emirates are of an enormous demand worldwide, and it attracts potential foreign investors into the country. Besides, undoubtedly, there is a great influence of the free economic zones which attract business representatives from the various countries.

The UAE: the index of economic freedom

The well-known international analytic centers, such as the Wall Street Journal and The Heritage Foundation, determine and publish annually the important economic indicator – the Index of Economic Freedom of the various countries. Over the past year, the United Arab Emirates, after the analysis of benefits for business, total tax level / tax payments within the country and the degree of economic freedom, was assigned the 99.9 index.

This index suggests that the tax system of the UAE is at the high level of attractiveness and advantages for business, and meets the best international standards. At the same time, the rate of this index reflects a very important factor that the country provides businesses and residents of the country with the most favorable climate for labour and entrepreneurship.

The Emirate of Dubai: peculiarities of the tax system

Speaking about the peculiarities of the tax system of the UAE, it is necessary to say that the system of taxation in the UAE, particularly in Dubai, completely eliminates the direct taxation of the residents, and the government revenues are derived from the indirect taxation.

The following taxes are not charged in the United Arab Emirates:

  • Taxes on the incomes of the physical persons;
  • Corporate taxes;
  • Value added tax;
  • Income tax;
  • Capital-gains tax.

However, the tax systems of the various Emirates of UAE can provide for certain forms of corporate taxation in the individual areas of activities.

Exception in the tax system of Dubai

In Dubai, the corporate taxes, including the taxes on income and capital gains, are levied on companies and financial institutions, which operate in the banking and oil and gas sector of the economy.

Besides, the financial activities of the companies with large turnovers are a subject to corporate taxation. In this case, the tax rate directly depends on the amount of the working capital of the company. In particular, the following tax levels is applied:

Amount of the working capital of the company (Dirhams)
Tax rate (%)
from 1 to 2 millions
10
from 2 to 4 millions
30
from 4 to 5 millions
40
more than 5 millions
50

At the same time, in practice, the abovementioned taxes are not levied on the majority of the activities, but they are levied only on the 3 abovementioned activities – banks, oil and gas sector and tourism.

In this case, the obligatory payments to the budget (taxation of the hotel services and taxes on organizing the leisure activities and restaurants) are limited by the 5% or 10% rate.

Taxation of the real estate

As to the real estate, there is the following scheme in the UAE: when purchasing the immovable property in Dubai, the one-time cadastral fee in the amount of 4% of the purchase price of the property is charged. Payment of this fee is imposed to both the buyer and the seller, respectively, 2% and 2%. When renting the residential premises, the 5% tax is charged. The tax rate of the lease, in the area of commercial real estate is 10%.

International tax planning

Companies and enterprises in Dubai, which possess the status of a tax resident of the UAE, have the opportunity to optimize the taxable base at the international level. Owing to the operation of the bilateral international agreements, which are aimed at avoiding double taxation of business, it is possible to optimize taxation in other countries where the company, registered in the UAE, operates.

The free trade zones

The specialized economic zones became a direct key element of the economic success of the United Arab Emirates. Since the registration of the first specialized free zone area, they have enjoyed immense popularity for creating profitable international business solutions. Today, the specialized economic zones of the very different orientation operate on the territory of the country.

The economical and commercial activities of the enterprises in the free zones are regulated by the specialized government body, which registers the international companies and grants the governmental licenses. It should be noted that the companies, which are registered in the special economic zones, possess the status of the companies of the FZC and have some limitations when operating in the UAE.

A favorable tax climate is the main advantage of the free trade economic zones of Dubai and other Emirates. Both the companies and employees are fully exempted from taxation. Moreover, to register such a company, you do not have to look for a local sponsor / citizen, as the 100% foreign participation is possible.

The companies in the free trade economic zones are guaranteed the tax-free repatriation of the investment capitals at the legislative level, and also are provided with the benefits for the customs duties.

Conclusion

Summarizing the peculiarities of taxation in the UAE, we can say that in the UAE all the state tax system of Dubai and other Emirates is designed to provide the international investors with an ideal environment for creating business. And such attitude toward the business is evident in the whole government policy. First of all, it is the absence of the barriers to the international trade, exclusion of the state financial control and quoting, infrastructure development for business, no taxes on import and export when working via the FTZ and other tax benefits.


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