UAE’s status as a tax-free haven has positioned it as an emerging global business hub due to its business-friendly policies.
Investors are taking advantage of the fiscal policies set by Federal Tax Authorities (FTA) in the UAE according to which you still can pay zero tax provided certain requirements are met.
With no personal income tax and a favorable corporate tax regime, Dubai and the broader UAE offer a compelling proposition for international enterprises.
The country’s robust taxation system also includes Free Zones like the Dubai Multi Commodities Centre and Abu Dhabi Global Market, as well as a strategic VAT framework.
These factors, coupled with comprehensive double tax treaties and tax residency incentives, make the UAE an attractive destination for optimizing tax liabilities and improving business growth.
Taxation System in Dubai and the UAE
The UAE’s taxation system is designed to attract global businesses, offering low corporate tax rates, extensive Free Zones, the absence of personal and capital gains tax and comprehensive double tax treaties.
Taxes for Individuals in Dubai and the UAE
A UAE residence visa allows one to become a tax resident of the country and legally optimize their taxes.
Individuals, both citizens and residents, do not pay any personal income tax whatsoever. They are also exempt from taxes on interest, dividends, wealth, luxury, inheritance, gifts, and capital gains.
Corporate Income Tax in Dubai and the UAE
UAE has recently implemented Corporate Income Tax (CIT) in the country.
Natural persons and juridical persons do not pay CIT for taxable Income up to and including AED 375,000 (circa USD 100,000). Taxable Income exceeding AED 375,000 is subject to a 9%.
Entities incorporated in any of the Free Zones available in the region carrying out qualifying activities are not subject to CIT.
UAE Resident Persons can apply for Small Business Relief if their revenue does not exceed AED 3,000,000 (circa USD 817,000) for the relevant tax period and all previous tax periods.
If granted, Small Business Relief will allow Resident Persons to be treated as having no taxable income in a relevant tax period and all previous tax periods ending on or before December 31, 2026.
Additionally, individuals who perform executive functions in the company can set a salary of up to USD 200,000, which will be considered a fully deductible expense.
CFC Rules in the UAE
The UAE does not currently implement rules for controlled foreign companies (CFCs).
This means that foreign income earned by UAE residents through their controlled foreign entities is not subject to additional UAE taxation.
Exit Tax in the UAE
The UAE does not impose an exit tax. Individuals and companies relocating their assets or operations out of the UAE are not subject to a tax on the transfer of these assets.
Withholding taxes
Currently, the withholding tax (WHT) rate is set at 0%, meaning that certain types of income sourced from the UAE and earned by non-residents are not subject to WHT, provided the income is not connected to a permanent establishment (PE) in the UAE.
Taxation for Holding Companies in the UAE
In a Free Zone:
Holding Companies in UAE Free Zones may qualify for a 0% tax rate if they meet the criteria for Qualifying Free Zone Persons (QFZPs).
Outside a Free Zone (Mainland):
Holding Companies in Mainland UAE are generally subject to a 9% CIT unless they meet the requirements for the participation exemption regime outlined in Article 23 of Federal Decree No. 47 of 2022.
UAE Tax Rates
Here is a brief table summarizing the key taxes in UAE:
| Tax Type | Description | Rates/Details |
|---|---|---|
|
Corporate Income Tax |
Since June 2023, a 9% tax has been imposed on businesses earning AED 375,000+ annually, with exceptions for oil and gas. |
9% on earnings over AED 375,000; 0% on lower earnings; oil and gas sector: 55%. |
|
Value Added Tax (VAT) |
A 5% tax on goods and services for companies earning AED 375,000+ annually, with voluntary registration for lower earnings. |
5% rate; exemptions include financial services, healthcare, education, and local transport. |
|
Withholding Tax |
Currently at 0%, attracting investors. |
0% withholding tax. |
|
Property Transfer Tax |
A fee on property transactions, varying by emirate. |
Dubai: 4% of property value; Abu Dhabi: 2%. |
|
Excise Tax |
Introduced to curb harmful consumption, applied to specific goods like tobacco and sugary drinks. |
100% on tobacco energy drinks and 50% on carbonated and sweetened drinks. |
|
Customs Duty |
A tax on imported goods, generally 5%, with higher rates for alcohol and tobacco. |
5% on most imports; 50-100% on alcohol and tobacco; exemptions for goods from certain countries. |
|
Municipal Rental Tax |
A tax on rented properties, added to the tenant's bill, differing by emirate. |
Residential: Dubai 5%, Abu Dhabi 3%, Sharjah 2%; Commercial: 10% (varies 6-10% by emirate). |
Main Free Zones in the UAE
A UAE Free Zone is a designated area within the United Arab Emirates offering favorable economic conditions to attract foreign businesses.
Free Zones are designed to boost international investment by reducing bureaucracy and offering modern infrastructure.
Setting up in a Free Zone involves straightforward registration and licensing processes, which are more efficient than mainland business setups.
The cost of opening a company in the United Arab Emirates varies between EUR 4,000 and EUR 10,000. This price is influenced by the selected Free Zone, the number of visas needed, and the type of business you plan to register.
Free Zones in Dubai
Dubai Free Zone
Free Zones in Dubai, such as the Dubai Multi Commodities Centre (DMCC) and Dubai Silicon Oasis, offer 100% foreign ownership, repatriation of profits, and no customs duties.
IFZA Free Zone
The International Free Zone Authority (IFZA) provides a cost-effective setup with various business activities and flexible office solutions, further enhancing Dubai’s attractiveness.
Abu Dhabi and Sharjah Free Zones
Abu Dhabi Free Zone
Abu Dhabi’s Free Zones, like Abu Dhabi Global Market (ADGM) and Khalifa Industrial Zone (KIZAD), offer businesses tax incentives and strategic advantages.
Sharjah Free Zone
Sharjah offers several Free Zones, including the Sharjah Airport International Free Zone (SAIF Zone), providing tax exemptions and logistical benefits.
Double Tax Treaties
The UAE has established a network of double tax treaties with over 100 countries.
These treaties aim to avoid double taxation and prevent fiscal evasion, offering benefits such as reduced withholding tax rates on dividends, interest, and royalties and providing clarity on tax matters for businesses operating internationally.
Obtaining a tax residency certificate in Dubai helps businesses and individuals benefit from the UAE’s extensive double tax treaties, reducing the tax burden on international income.
Tax Residency Criteria in Dubai and the UAE
To become a tax resident in Dubai and, consequently, in the United Arab Emirates (UAE), individuals and companies must meet specific eligibility criteria.
For companies
When a company is registered in the UAE, it is automatically considered a tax resident. However, applying for a Taxation Residence Certificate is only possible after one year of registration.
This certificate is needed to confirm the UAE tax residency in another country and avoid double taxation.
For individuals
For individuals, the primary requirement is physical presence in the UAE.
You must spend at least 183 days within the country during a calendar year to qualify as a tax resident. However, exceptions might apply if you have strong ties to the UAE, such as owning a permanent home or being employed in the country.
Additionally, you must hold a valid residency permit, which serves as a legal basis for your stay in the UAE.
How Can We Help You?
The UAE, particularly Dubai, offers businesses and individuals a highly favorable tax environment.
Dubai and the UAE stand out as a premier destination for global enterprises with its strategic free zones, attractive corporate tax rates, and comprehensive VAT system. Furthermore, it is one of our favorite destinations for individuals due to the absence of income tax, like, with some nuances, Panamá, Costa Rica, the Dominican Republic and Paraguay.
Along with the opportunities offered by the UAE, the FTA also imposes heavy fines and penalties for non-compliance with the regulations of relevant authorities.
The experts at TaxMove help you get benefits from the UAE taxation system and take advantage of tax exemptions by following the laws and policies of the UAE government and relevant authorities. Furthermore, with TaxMove, you will only need to visit the city for 3 days to incorporate an entity rather than going 2 times.
Submit the form to get tailored advice from our experts
What are the key tax benefits of living in the UAE?
The UAE offers significant tax advantages, including no personal income tax, no capital gains tax, no inheritance tax, and various tax exemptions in designated Free Zones.
How does the UAE's corporate tax system work?
As of June 2023, businesses in the UAE earning over AED 375,000 annually are subject to a 9% corporate income tax.
Are there any withholding taxes in the UAE?
The UAE does not impose any withholding taxes, making it an attractive destination for international investors.
How can individuals become tax residents in the UAE?
Individuals can become tax residents by spending at least 183 days in the UAE during a calendar year and holding a valid residency permit. Exceptions apply for those with strong ties to the UAE, such as owning a permanent home or being employed in the country.
What is the "Small Business Relief" in the UAE?
The Small Business Relief allows UAE resident persons with revenue not exceeding AED 3,000,000 to be treated as having no taxable income for the relevant tax period and previous tax periods ending on or before December 31, 2026.
What are the benefits of setting up a business in a UAE Free Zone?
Businesses in UAE Free Zones enjoy 100% foreign ownership, repatriation of profits, no customs duties, and various other tax incentives and streamlined administrative processes.
What is the cost of opening a company in Dubai and the UAE?
The cost of opening a company in the United Arab Emirates varies between EUR 4,000 and EUR 10,000. This price is influenced by the selected Free Zone, the number of visas needed, and the type of business you plan to register.
Is there an exit tax for individuals or businesses leaving the UAE?
The UAE does not impose an exit tax on individuals or businesses transferring assets or operations out of the country.
Does the UAE have double tax treaties with other countries?
Yes, the UAE has double tax treaties with over 100 countries, providing benefits such as reduced withholding tax rates on dividends, interest, and royalties, and preventing double taxation on international income.
