The United Arab Emirates is one of the leading financial hubs and a preferred destination for many businesses, supported by highly developed infrastructure and world-class amenities. One of the country’s main attractions is undoubtedly the absence of corporate taxes.
The Federal Tax Authority (FTA) is responsible for issuing and implementing taxation orders in the country.
Corporate and Income Taxes in the UAE
The tax regime in the UAE is made up of its seven Emirates. These Emirates have their local regulations and law implementations. There is NO FEDERAL CORPORATE TAX in the UAE; instead, corporate tax is applicable on certain sectors.
- Foreign Oil Companies – engaged in upstream petroleum activities.
- Companies in Petroleum activities.
- Branches of Foreign Banks.
The progressive Corporate Tax for companies in the Petroleum sector is levied up to 55%.
The foreign bank branches are subject to a flat 20% corporate tax rate.
There are no other corporate tax implications for businesses currently in the UAE.
Some key points related to corporate and income taxes in the UAE:
- Corporate taxes are levied only on the oil companies and foreign bank branches.
- Companies must file for VAT and Excise taxes in the UAE.
- Repatriation of branch profits to headquarters or abroad is also not subject to any withholding taxes, except foreign bank branches.
- In the absence of corporate taxes, there are no Income tax obligations to the business owners.
- Free Zones in different parts of the UAE offer tax holidays from 15 to 50 years to all companies.
- Most entities in the UAE do not file for corporate taxes.
- Although all companies must fulfil other regulatory requirements.
VAT in the UAE
To diversify its economy and comply with the GCC decision of VAT implementation, the UAE government introduced VAT in 2018.
Value Added Tax was implemented at a rate of 5% in the UAE. Most businesses in the UAE are subject to VAT, with some exceptions.
Here are some key points to consider for VAT in the UAE:
- Most businesses in the UAE are subject to VAT
- Certain supplies are subject to Zero-rated (0%) VAT.
- Exempted sectors include all educational and health services, residential properties, and certain financial services.
- Some Free Zone entities are also exempted from VAT, provided they meet certain conditions.
- Businesses are required to register for VAT if Taxable supplies and imports exceed the Mandatory Threshold of AED 375,000.
- Business may choose to register for VAT Taxable supplies and imports or expenses that exceed the Voluntary Threshold of AED 187,000.
- You can only charge VAT on invoices once you are registered and have a TRN. The invoices are also subject to Tax Invoice Requirements as per the regulations.
- VAT Returns are required to be submitted on regular basis to pay/collect the VAT liability/refund.
- All businesses need to comply with the record maintenance obligations for VAT.
- VAT is only applicable when the Place of Supply is UAE.
Excise Tax in the UAE
Some businesses in the UAE are also affected by the implementation of the Excise Tax in UAE. It was implemented in 2017 on certain products as a form of indirect tax.
Since 1 December 2019, the scope of Excise Tax and effective rates include:
- 100% on tobacco products, electronic cigarettes, energy drinks, and liquids used in tobacco products.
- 50% on carbonated drinks and products with added sugar and sweeteners.
Free Zone Companies
There are around 45 designated free zone authorities in the UAE. These Free zones offer a dedicated business environment to its registered partners. All businesses registered in the free zones are exempted from corporate and income taxes. As mentioned earlier, most Free Zone Authorities offer tax holidays from 15 to 50 years on renewable terms.
Businesses operating inside some free zones are also exempted from the VAT, customs duties, and Excise tax implications, provided they meet certain criteria.
Other Taxes in the UAE
There are some other forms of taxes in the UAE imposed on different types of businesses and income.
Property Tax – Some Emirates impose a local property tax for commercial and residential properties. In Dubai, the commercial property tax is 5%, and the residential property tax is 2.5%.
Hotel Tax and Tourism Levy – Hotel stay is subject to tax in Dubai and Abu Dhabi. The tax ranges from AED 7 to AED 20 per night in Dubai, while 6% per night charges in Abu Dhabi.
Custom Duties – the general rate of customs duties on all imports is 5% in the UAE. All imports from the GCC member states are exempted. Some goods, such as tobacco, are subject to excise duty as well.
Business owners’ tax Obligations in the UAE
Business owners of small and medium enterprises in the UAE do not need to currently pay any corporate or income taxes. With no corporate taxes, the type of entity and pass-on taxes are subject to limited importance.
Small business owner’s only tax implications are related to VAT and/or Excise taxes on goods and services.