The UAE is a federation of seven sovereign states: Dubai, Abu Dhabi, Fujairah, Ras Al-Khaimah, Ajman, Umm al-Qaiwain and Sharjah. The tax system in the UAE has two levels: federal and regional level (local and economic free zone areas). It is designed to attract domestic and foreign investments through 0% income, corporate, capital gain, wealth, and inheritance taxes on individuals and companies residing in the UAE. Additionaly, the UAE government signed double taxation agreements (DTAs) with 137 countries around the world to prevent income of foreigners being taxed is two different countries. However, certain taxes and fees still apply to citizens and foreigners, which are assessed in more detail below.

How To Become Tax Resident of the UAE as an Individual?

Requirements to legally obtain tax residency in the UAE as an individual are listed below.

Economic substance – individuals must provide proof of property ownership, employment, or business in the UAE.
Residency – Individuals must be present in the UAE for at least 183 days. UAE and GCC nationals or any individuals with valid residence permits must be in the UAE for at least 90 days.
Residency Visa – Individuals need to have a valid UAE residence visa.

Applicants that meet the criteria above can apply for tax residency in the UAE with the Ministry of Finance. Documents that need to be submitted with the application are listed below.

proof of income (or certificate)
copies of passport
local bank statement showing 6 months period
a certified copy of the mortgage agreement or a copy of the tenancy contract
a report mentioning the number of days the applicant lived in the UAE
a tax report from the relevant country for a foreign individual

After an individual is approved as a tax resident, they receive the tax residency certificate (TRC). TRC is beneficial for individuals and firms to avoid double taxation.

How to Get Tax Residency in the UAE as a Company?

To get tax residency in the UAE, businesses can apply for a Tax Domicile Certificate (Tax Residency Certificate). UAE-based businesses often use this certificate to avoid double taxation in foreign countries where they have operations.

The general conditions for a company to obtain a Tax Residency Certificate in the UAE are listed below.

Incorporation – The company must be registered and incorporated in the UAE for at least one year before the application.
Business activities – The company should have ongoing business activities in the UAE.
Valid Licence – The company should have a valid operating license issued by a local authority in the UAE.

Documents that must be submitted to the UAE Ministry of Finance when applying for a Tax Residency Certificate are listed below.

A copy of the company’s trade license.
A copy of the company’s memorandum of association.
A copy of the company’s audited financial statements.
A certified copy of the company’s lease agreement.
Bank statements from the companies corporate bank account for the last six months.
An immigration report showing the company’s shareholders and directors.
Proof of having employees in the UAE, holding board meetings in the UAE, and/or making management decisions from the UAE.

Businesses that operate outside the UAE (offshore companies) and companies that are registered in the free zone areas are generally not allowed to obtain a UAE Tax Residence Certificate. However, these companies can be treated as UAE tax residents if they are run and controlled in the UAE.

What Are The Main Authorities Of The Tax System in the UAE?

The UAE tax system has two central authorities: The Ministry of Finance (MoF) and the Federal Tax Authority (FTA). The UAE Ministry of Finance’s main responsibility is to regulate and supervise the tax system. On the other hand, the FTA is responsible for administering and collecting federal taxes in the region. It also has the authority to audit federal tax payment-related entities and imposes sanctions.

Federal Taxes in UAE For Individuals (Traders and Investors)

Federal taxes that apply to UAE citizens are listed and explained below.

Income tax

The UAE does not apply any income tax on residents. Income sources exempt from this tax include freelancing, dividend, royalties, interest, and gifts from individual tax residents. Because there is no applicable income tax, individuals are not required to fill out income tax return documents in the UAE.

Withholding tax

The UAE does not apply withholding taxes on any payments of passive and active income. This includes dividends, interest, and royalties paid to non-residents. However, UAE residents can be subject to withholding tax of foreign countries on passive income generated by a foreign firm.

Value-Added Tax (VAT)

Value Added Tax (VAT) is an indirect tax that applies to the majority of transactions on goods and services in the UAE and is paid by the end consumer. The Value Added Tax (VAT) in UAE is 5%. However certain goods and services are charged with 0% VAT (Some goods and services fall under the zero-rated category, which means VAT is charged at 0% on these goods and services) and some are exempt from VAT (bare land, local passenger transport, and certain financial services).

Foreigners can apply for VAT refunds and receive back up to 85% of the total amount of paid VAT. Eligibility criteria to request VAT refunds include:

a valid tourist visa
a minimum age of 18 years
refund eligibility of purchased goods

In general, all goods are eligible for VAT refunds except fully or partially consumed or used goods, goods not with the overseas tourist when leaving the UAE, online purchased goods, and goods no longer in original packaging.

Individual Tax (Social Insurance Tax)

The UAE levies a social security tax of 17,5% to employees who are Gulf Corporation Council (GCC) nationals. The tax also applies to employees off shore companies and firms registered in the economic free zones areas. UAE employees pay 5% of the tax (it gets automatically deducted from their paycheck), while their employer pays 12,5%. Although non-GCC nationals are excluded from the social security tax in the UAE, they may be subject to a similar contribution tax from their home country.

Property Transfer Tax

The UAE does not impose a property transfer tax on residents and non residents. However, there are certain fees associated with the transfer of property ownership including transfer, administrative, registration, and certificate of ownership fees. The fee rates are listed and explained below.

The transfer fees are paid mainly by the buyer and vary across the Emirates. In Dubai, the transfer fee is 4%; in Abu Dhabi, it is 2%, plus an administrative fee of AED 540.

The registration fee is AED 2,000 for properties valued below AED 500,000 and AED 4,000 for properties worth over AED 500,000.

Certificate of ownership is AED 250 and must be paid by the new owner

Municipality (Rental) Tax

Taxes on rented properties in the UAE vary across emirates and range from 2 – 5%. In Dubai, the housing fees is 5% of the annual rental contract and is paid by expatriate tenants. For homeowners who occupy their property, the fee is 0.5% of the property value, based on a calculation made by the Dubai Municipality. In Abu Dhabi, a municipality tax of 3%, known as the “municipality fee,” is levied on expat tenants and is typically added to the tenant’s monthly utility bill. In Sharjah, tenants pay a municipality tax of 2%.

The municipality tax for commercial properties is paid by property owners.

Capital Gain Tax

The UAE does not apply a capital gain tax profits made through sales of securities (stocks, bonds, forex, cryptos, real estate, commodities) by residents and non-residents. However, capital gains derived from a company that is subject to taxation under the banking tax decree may be subject to taxation.

Capital Transfer Tax

The UAE does not apply any capital transfer tax to individuals. This applies to all types of capital, including money, investments, and real estate. However, individuals must pay a registration and certificate ownership fees on real estate transfers. The fee is AED 2,000 for property values up to AED 500,000 and AED 4,000 for properties valued over AED 500,000.

Estate tax

The UEA does not apply estate tax on individuals.

Inheritance tax

The UEA does not apply inheritance on individuals.

Stamp duty

The UEA does not apply stamp duty on individuals.

Wealth tax

The UEA does not apply wealth tax for individuals.

Federal Taxes in UAE For Foreigners

The UAE does not apply a tax on income of foreigners working in the UAE irrespective of their residency. The UAE tax system also does not apply a capital gain tax on profits generated by foreigners through trading and investing with securities (stocks, forex, crypto, bonds and others). Foreigners are required to obtain a Taxation Residence Certificate from the UAE government to avoid double taxation. This certificate, along with a tax identification number, confirms a foreigner’s tax resident status in another country.

Federal taxes and fees that apply on foreigners in the UAE are listed below.

Tourist Facility Tax

Foreigners are subject to a tourist facility tax in the UAE. The tax is applied to all foreigners staying at hotels, apartments, and villas. The tourist facility tax is generally 10%, thus it can vary across emirates.

The different types of tourist facility taxes in UAE and their rates are listed below.

Hotel room rate (10%)
Service fees (10%)
Municipality fee (0-10%)
City taxes/fees (6–10%)
General Tourist tax (6%)

Social Insurance Tax (Individual tax) for Foreigners

Foreigners are exempt from paying social insurance or pension tax in the UAE. However, foreigners may be subject to a individual tax in their home country.

Double Taxation Agreements (DTAs)

To avoid double taxation, the UAE Ministry of Finance signed Double Taxation Agreements (DTA) with other countries. These agreements assure that no income, wealth, corporate, or other taxes (which are agreed upon the DTA) are applied twice to the same individuals or firms in a partner nation. The UAE currently has 137 DTAs with countries including Algeria, Austria, Belgium, Armenia, Azerbaijan, Bosnia and Herzegovina, China, the Czech Republic, Egypt, Cyprus Finland, France, Greece, Belarus, Georgia, Germany, Italy, India, Ireland, Kazakhstan, Canada Bulgaria, Indonesia, Lebanon, Luxembourg, Korea, Malta, Mauritius, Malaysia, Mozambique, Mongolia, Morocco, the Netherlands, New Zealand, Ukraine, Philippines, Pakistan, Portugal, Poland, Romania, Seychelles, Spain, Sudan, Singapore, Syria, Thailand, Turkey, New Zealand, Tajikistan, Tunisia, Uzbekistan, Vietnam, Venezuela, Sri Lanka, and Yemen.

The UAE is also a signee of the Common Reporting Standard (CRS), which allows participating countries to exchange tax related data.

Federal Taxes in UAE For Companies

Federal taxes that are levied to companies in the UAE are listed and explained below.

Corporate Tax

Corporate taxes in the UAE vary depending on the quantity of the company’s taxable income. The corporate tax in UAE for companies with a net profit of over AED 375,000 is 9%. Companies that qualify for the corporate tax must register with the Federal Tax Authority and submit corporate tax returns annually.

Property Tax (Municipality Tax)

Companies in the UAE are subject to a municipality tax on profits generated through property rentals. The municipality tax for companies in the UAE is 5% of the yearly rental cost. The property tax rates can vary across Emirates.

Excise tax

Companies in the UAE are subject to a excise tax on purchased and produced goods that are considered harmful. These goods are listed together with their tax rates below.

A 50% tax is levied on carbonated beverages, except unflavoured carbonated water. This may extend to any items used to make carbonated drinks.
A 100% tax is levied on energy drinks containing stimulating substances such as caffeine, taurine, ginseng, and guarana
A 100% tax is imposed on tobacco and all tobacco-related products

Firms that import, produce, collect, and sell excise goods are also obligated to register for excise tax and pay the tax by the 15th day of each month. UAE companies must register for excise tax if one of the below criteria is met.

If the company imports excise goods into the UAE
If the company produces excise goods aimed for consumption in the UAE
If the company is stocking or overseeing a warehouse for excise goods in the UAE

Value-Added Tax (VAT)

The VAT rate in the UAE is 5%. Companies must register for VAT if their total annual amount of taxable supplies and imports exceeds AED 375,000. On the other hand, companies with yearly turnovers between AED 187,500 and AED 375,000 can apply for VAT voluntarily. Non-UAE-based companies must register for a VAT number if they generate taxable supplies within the UAE.

Requirements of VAT-registered companies in the UAE are listed below.

Applying VAT on taxable products and services, they provide
Deducting VAT on purchased goods and services used for their business
Submitting VAT related documents

Value-Added Tax (VAT) Rates in the UAE

Three types of VAT rates in the UAE: standard rate (5%), zero rate supplies (0%), and exempt supplies.

1. The standard (5%)VAT rate is applied to domestic taxable supplies, including entertainment, electronics, hotel services, food and beverages, utility bills, private transport services, school uniforms, commercial rent, cars, jewelry, and other sectors.

2. Zero-rate VAT is applied to certain goods and services, including international transportation services, export of goods and services, etc.

3. Exempted supplies from VAT include goods and services in financial services (including life insurance), bare land, local passenger transport services and residential buildings ( except for building that zero-rated).

Tax System in the UAE Free Trade Zones

The UAE has a special taxation regime in areas of economic free trade zone (FTZ). Companies registered is these areas are exempt from corporate taxes, VAT, income tax, and export & customs duties. Companies registered in FTZ without onshore trading activities can be exempt from paying corporate taxes for a time span of 15-50 years.

Economic free trade zones also allow foreign investors to own 100% of the company registered in the area.

How Does the UAE Tax System Treats Tax Evasion and Avoidance

Although the UAE is well known for its low tax jurisdiction, tax evasion and avoidance remain challenging for the authorities. Tax evasion is considered a criminal offense and penalties can include fines, prison sentences, and deportation for foreign nationals. Tax avoidance, which involves exploiting legal loopholes in tax laws to minimize tax liability, can also be subject to scrutiny and penalties. The UAE has adopted a legal framework to prevent tax evasion and also regulates tax avoidance.

Tax Evasion

Activities of individuals and companies that are labeled as tax evasion are listed below.

– Intentional provision of false tax-related information and documentation to the authorities.

– Intentional destruction of tax-related documents to hide evidence regarding tax liability.

– Prevention, threatening or bribing of tax employees to perform their duties.

– Illegal charges of taxes without any registration

Tax Evasion Punishment

There are three ways of tax evasion punishment in the UAE: monetary penalties, imprisonment and deportation for foreign nationals

The amount for monetary penalties varies but can’t exceed five times the amount of tax evaded. Imprisonments for tax evasion can be up to seven years and exceed the money laundering punishment.

Anti-avoidance rules in the UAE

The UAE legal system adopted the General Anti-Abuse Rule (GAAR) through the Federal Decree-Law No. 47 of 2022. GAAR is an anti-tax avoidance law requiring authorities to consistently check on transactions or arrangements that could potentially lead to corporate tax advantages. These advantages include any effort to obtain a tax refund, increase the amount of refund, accelerate tax refund, reduce tax amount, defer tax payment, and avoid other obligations related to corporate tax. GAAR also authorizes the UAE Tax Authority to disregard the transactions or arrangements that have no commercial substances, are recorded only for gaining tax benefit, and are considered abusive.

Tax Dispute Resolution Mechanism in the UAE

The UAE tax system allows individuals to appeal tax decisions issued by the FTA. The appeal must be submitted by the individual or his legal representative in Arabic language within 20 days of receiving the FTA’s decision. The FTA must respond within 20 business and inform the final decision to the applicant within five business days since the verdict is issued. If the FTA gives no response within the legal time frame above, the applicant can report to the Tax Disputes Resolution Committee to proceed with the applicant. The Tax Disputes Resolution Committee comprises three committees from Dubai, Abu Dhabi, and Sharjah. The Sharjah Committee serves applicants registered in Emirates beyond Dubai and Abu Dhabi. Finally, the Abu Dhabi Committee focuses on foreign companies with no regional address.

Other Law Enforcement

Violations of tax procedures generate administrative penalties at various levels. The table below describes the type of violations on tax procedures and the corresponding amount of penalty.

Conclusion

The tax system in the UAE is with low tax rates and lack of some types of taxes attractive to international traders and investors. They don’t need to pay taxes on income, capital gains and capital transfers. The UAE has has also signed double taxation agreements with most of the countries to avoid double taxation. The process of obtaining tax residency in UAE is straight forward and can be completed fully online.