United Arab Emirates is a Federation of seven Emirates-Abu Dhabi, Dubai, Sharjah, Ajman, Ras Al Khaimah, Umm Al Quwain and Fujairah established in 1971. Each individual Emirate continues to exercise all its judicial and political powers except those that are not assigned to the Federation by the federal constitution or by agreements transferred to the federal government.
The federal government however maintains exclusive jurisdiction in a number of areas, such as foreign affairs, defence, health and education while the individual emirates retain exclusive jurisdiction in other matters including those relating to municipal work and natural resources of the Emirates concerned
Federal Tax Authority (FTA) was established pursuant to Federal Decree No 13 of 2016 and FTA will be responsible for the administration of all types of Federal Taxes. Presently, each of the Emirates has its own Income-tax Decrees which predates the formation of UAE. These are presently not enforced except in case of foreign bank branches, and oil and petrochemical companies who pay corporate income tax by special agreement with the Ruler of each of the Emirates. Once FTA promulgates federal tax laws, above Emirate wise decrees will then operate subject to the provisions, if any, made in the UAE Federal Laws.
1.0 FEDERAL TAXES AND LEVIES
1.1 Federal Tax Authority
The Federal Tax Authority (FTA), the government entity responsible for the collection and management of federal taxes, was established in 2016 by the President of the UAE, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, via UAE Federal Decree 13 of 2016.
Federal Law on Tax Procedures has also been promulgated. The said Law provides for tax administration procedures including penalties for all types of taxes and their compliances to be promulgated by the Federal Government Decrees. Initially VAT and Excise Tax will be administered by the FTA and other taxes could be added in due course.
1.2 Value Added Tax
UAE has implemented Value Added Tax (VAT) with effect from 1 January 2018 (Other GCC countries via. Kingdom of Saudi Arabia, Bahrain and Sultanate of Oman, have also implemented VAT, but Kuwait and Qatar have so far not introduced VAT as of January 2024)
VAT registration will be mandatory for revenue above AED 375,000 million (US 100,000).
For revenue between AED 187,500 and AED 375,000 VAT registration will be voluntary.
There are limited items covering zero rate (such as exports, basic healthcare, private school education and public funded health education, international transportation of passengers and goods).
There are limited exempt items (such as margin financial products, bare land, residential properties and life insurance).
All other supply of goods and services will be subject to standard rate of 5%.
Imports of goods will be subject to reverse charge mechanism. Input credit can be claimed for VAT paid by registered taxable perosns.
1.3 Excise Tax
Excise Tax is introduced across the UAE with effect from 1 October 2017. The Excise tax are as under:
Above goods are referred to as “excise goods”. When considering whether a product is an excise good, the following definitions apply:
Carbonated drinks include any aerated beverage except for unflavoured aerated water. Also considered to be carbonated drinks are any concentrations, powder, gel, or extracts intended to be made into an aerated beverage
Energy drinks include any beverages which are marketed, or sold as an energy drink, and containing stimulant substances that provide mental and physical stimulation, which includes without limitation: caffeine, taurine, ginseng and guarana. This also includes any substance that has an identical or similar effect as the aforementioned substances. Also considered to be energy drinks are any concentrations, powder, gel or extracts intended to be made into an energy enhancing drink.
Tobacco and tobacco products include all items listed within Schedule 24 of the GCC Common Customs Tariff.
1.4 Corporate Income Tax
This will be enforced for the financial years commencing after 1st June 2023.
If the financial year is January-December, then the corporate income tax will be levied for the first financial year commencing on 1st January 2024. No corporate income tax is payable for the period prior to 1st January 2024.
If the financial year is April-March, then the corporate income tax will be levied for the first financial year commencing on 1st April 2024. No corporate income tax is payable for the period prior to 1st April 2024.
The introduction of Corporate Income Tax in the UAE follows the global agreement amongst countries for a global minimum effective tax rate of 15% in 2023 and is in line with the UAE’s commitment to meet international standards for tax transparency and preventing harmful tax practices under the Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting (BEPS) project.
Corporate income Tax rate will be levied as under:
For taxable income below AED 375,000 Nil
For taxable income exceeding AED 375,000 9%
In case of multinational groups with group revenue exceeding Euro 750 million, a top-up tax rate will be applicable in accordance with BEPs guidelines.
1.5 Capital Gains Tax
Under UAE CT there is no distinction between capital gains and normal income.
1.6 Wealth Tax
Presently, there is no wealth tax.
1.7 Gift Tax
Presently, there is no gift tax.
1.8 Estate Duty
Presently, there is no estate duty.
1.9 Personal Tax
Presently, there is no personal tax on
Any income from business activity carried in personal name/invidiual name will be subject to UAE CT
1.10 Minimum Alternate Tax
Presently, there is no minimum alternate tax.
2.0 LOCAL OR STATE TAXES
2.1 Stamp Duty/Service charges
There is no stamp duty. However, there are various fixed transaction or user based charges for processing of trade licences, visa, work permit, notarization, vehicle registration and other services from government departments.
2.2 Payroll Tax
There is no payroll tax. However, in case any UAE National is employed in the private sector, then the employer must pay monthly contribution to a pension fund at the rate of 15% of the contribution salary (i.e. basic salary and allowances). Further, contribution of 11% is due from the employee which the employer deducts from the employee’s salary and pays to the pension fund.
2.3 Land & Property Tax
4% registration tax is payable on sale/transfer of properties.
On rented property (residential and commercial) 5% of rental value is payable in Dubai, (as against 3% in Abu Dhabi and 4% in Sharjah).
In case of hotels, serviced apartments and clubs, Dubai Tourism Board Tax is 10% of the room and other revenue, and 10% service charge. In Abu Dhabi municipality tax rate is 6%, tourism levy of 4%, in addition to 10% service charge.
3.0 UNIFIED GCC CUSTOMS DUTY
Under the terms of the Gulf Co-operation Council regulations (comprising the member states of UAE, Saudi Arabia, Qatar, Oman, Kuwait and Bahrain), a unified customs tariff of 5% of the c.i.f. value applies to the taxable imports of all of the GCC member states as from 1 January 2003. All existing taxes and duties on imports within the GCC member states have been abolished.
Tobacco and tobacco products are subject to a 100% customs duty, and for alcohol the rate is 50%.
Exemptions from customs duties apply in the UAE and other GCC member states, to various items including basic foodstuffs, raw materials for manufacturing industries, spare parts for civilian airlines, diplomatic and consular missions’ imports, imports for military and internal security forces, personal effects and charitable organizations’ imports.
4.0 TAX INCENTIVES
4.1 EXPORTS
There are no special incentives for exports
4.2 ECONOMIC ZONES
Each of the seven Emirate has its own free zones. These free zones have various benefits such as:
Some of the important free zones and their websites are as under
Under UAE Corporate Income Tax, Qualified Free Zone Persons (QFZP) can claim exemption form income arising from qualifying activities subject to conditions specified in the UAE Corporate Income Law
4.3 SPECIAL INCENTIVES
An entity manufacturing goods in UAE can export its goods to GCC countries without customs duty if its manufacture involves 40% value addition and the entity is owned 51% by GCC National.
4.4 FOREIGN TAX RELIEF
Tax credit under tax treaties
UAE CT law has provisions for claiming credit for tax paid in other countries on the same taxable income though this cannot exceed the tax payable in UAE
4.5 UAE WITHOLDING TAXES
UAE Corporate Income Tax provides for withholding tax rates.
Presently, withholding tax rate is 0%
4.5 RELATED PARTY TRANSACTIONS
UAE Corporate Income Tax Law has detailed regulations for transfer pricing regulations between related parties and connected persons. These follow OECD
regulations and principles. Transactions between related parties and connected parties will need to done on arms length pricing basis and must be supported by adequate documentation.
4.6 DOUBLE TAXATION TREATIES
UAE has signed double tax avoidance treaties with numerous countries to faciliatate cross-border trade and investment, ensuring that individuals and companies are not taxed twice on the same income. As of January 2024 the UAE has DTAs with the following countries:
Albania, Algeria, Andorra, Angola, Antigua and Barbuda, Argentina, Armenia, Austria, Azerbaijan
Bangladesh, Barbados, Belarus, Belgium, Belize, Benin, Bermuda, Bosnia & Herzegovina, Botswana, Brazil, Brunei Darussalam, Bulgaria, Burkina Fasso, Burundi
Cameron, Canada, Chad, Chile, China, Commonwealth of Colombia, Comoros Islands, Costa Rica, Cote D’Ivoire, Croatia, Cyprus, Czech
Democratic Republic of Congo
Ecuador, Egypt, Equatorial Guinea, Estonia, Ethiopia
Fiji, Finland, France
Gabon, Gambia, Georgia, Ghana, Guinea, Guinea-Bissau
Hellenic, Hong Kong, Hungary
India, Indonesia, Iraq, Ireland, Italy
Jamaica, Japan, Jersey, Jordan
Kazakhstan, Kenya, Kingdom of Saudi Arabia, Korea Republic, Kosovo, Kyrgyztan
Latvia, Lebanon, Liberia, Libya, Liechtenstein, Lithuania, Luxembourg
Macedonia, Magnolia, Malaysia, Maldives, Mali, Malta, Mauritania, Mauritania, Mauritius, Moldova, Monaco, Montenegro, Morocco, Mozambique
Netherlands, New Zealand, Niger, Nigeria
Pakistan, Palestine, Panama, Paraguay, Philippine, Poland, Portugal
Republic of Congo (Brazzaville), Romania, Russia, Rwanda
Saint Kitts and Nevis, Saint Vincent and the Grenadines, San Marino, Senegal, Serbia, Seychelles, Sierra Leone, Singapore, Slovak Republic, Slovenia, South Africa, Sudan, Suriname, Switzerland, Syria
Tajikistan, Tanzania, The Co-operative Republic of Guyana, Thailand, Tunisia, Turkey, Turkmenistan
Uganda, Ukraine, United Kingdom, United Mexican States, Uruguay, Uzbekistan
Venezuela, Vietnam
Yemen
Zambia, Zimbabwe
4.7 TAX RESIDENCY CERTIFICATES
Tax residency certificates (TRC) are issued by FTA in case of
TRC can also issued in relation to a specific country with which UAE has DTAA treaty.
Detailed documents need to be submitted to the Ministry for TRC
