Both an individual and a legal entity who comes to the United Arab Emirates to live or work can become a tax resident. This means that you will be registered with the FTA (Federal Tax Authority) and your income will be taxed in accordance to the rules of local law.
According to the tax system, there is no federal tax on income, inheritance or gift, dividends, and interest on the sale of real estate and royalties. Income tax in the UAE is the most democratic. The annual real estate tax is also zero: the fee is charged only for the transfer of ownership in the event of the acquisition or resale of the object. The rate in each Emirate is different: it will be 4% in Dubai and 2% in Abu Dhabi
Why get a tax certificate
Emirati tax certificate allows a legal entity or individual to optimize their costs and save profits. How exactly:
- A tax resident of the UAE is exempt from paying taxes in their country or pays them at a reduced rate. There is a legal argument for this: an agreement is concluded between the states on the avoidance of double taxation. There are currently 138 countries on the list.
- Being a tax resident makes it easier to prove the source of income, despite the fact that there are no tax returns. All information about income is in bank accounts, and copies of contracts confirm the legality of funds.
In addition, corporate profits are not burdened by high rates, and individuals may not pay taxes at all.
Comfortable environment for entrepreneurs
Until this year, organizations were not required to pay corporate income tax. However, from June 1, 2023, the changes will come into force and will only affect those whose annual revenue exceeds 375,000 AED (approximately $100,000) and if the activity is carried out within the territory of the United Arab Emirates. For companies that fall under these categories, the corporate tax rate will be 9%. For other enterprises, the conditions will remain the same - no income tax will be charged in the UAE. In addition, taxes in the UAE do not involve insurance premiums that are paid for employees. Commercial organizations that operate in the territory of an Emirate pay indirect VAT in the amount of 5%. Ultimately, this burden falls on the buyer.
More traditional tax practice applies to the following entities:
- the rate for oil and gas companies and enterprises for the production of hydrocarbons is 55%;
- the rate for foreign banks is 20%.
Companies that produce products that are harmful in the opinion of the state are subject to excise tax in the following amount:
- for products with added sugar and sweeteners, including carbonated drinks - 50%;
- Tobacco, smoking devices and energy drinks - 100%.
The excise tax applies to all participants in this business - including those who produce, import or store these type of goods in warehouses.
Profit tax for small and medium-sized enterprises is paid quarterly, while representatives of large businesses do it monthly. The declaration must be submitted through the FTA website no later than 28 days after the end of the specified period. In a situation where a legal entity is registered in the Emirate, but is registered in another country, income in the form of dividends will be taxed there. Thus, the profit of a legal entity in the Emirates is kept at the maximum amount.
No tax for individuals
Dubai is an emirate where a significant part of the tax burden falls on tourists who come to rest: they live in hotels or rent apartments, visit restaurants and cafes. For them, several types of duties are provided at once, which are usually included in the total amount of the invoice:
- hotel tax — 10%,
- service fee — 10%,
- council tax for tenants - from 0% to 10%,
- city tax — from 6% to 10%,
- Tourist tax - 6%.
The rate in each city may vary. In Dubai, among other things, travelers pay the so-called tourist dirham - a fee for those who stay in hotels. The amount depends on the category of the hotel and the room: as a rule, it is from 7 to 20 AED. The fee is charged per night of stay, but only for the first 30 days. If you stay at the hotel longer, the tourist dirham will not be charged. Individuals are exempt from income tax. Additionally, when visiting restaurants and hotels, tax is added to the cost by default.
The duty on the sale and purchase of shares, other assets and cryptocurrency is 0%.
When renting out a property, the owner pays nothing. Simply put, for individuals, it is relevant to pay a fee when buying or selling real estate.
How to become a tax resident in Dubai
To obtain tax resident status, certain requirements must be met, which differ for individuals and legal entities.
Individuals:
- can prove that the UAE is their main residence, center of professional and financial activity;
- stay in the country for at least 90 days a year.
This means that the status can be obtained if you have a resident visa, an Emirates ID and a bank account into which funds are received.
Legal entities:
- created and recognized by the UAE authorities in accordance with the law;
- the owner or director of the organization is registered as a resident of the United Arab Emirates;
- the company must exist for at least one year.
An important legal aspect: the certificate is not issued by the services without your request, although this would be convenient - for example, you get an Emirates ID or open a business, and they attach an identification tax number to you. A foreign resident must have an appropriate certificate, which is issued by the FTA. An account is created through a personal account and documents are sent in the established format. If the applicant complies with these conditions and completes the application in accordance with the procedure, the FTA is very likely to approve it. The completed certificate will be valid for one financial year. It is then extended as needed.
Make Fortune Business Solutions specialists provide comprehensive support for registration and obtaining the status of a tax resident in the UAE. We help to understand the intricacies of filling out questionnaires and applications, avoid mistakes due to ignorance of local legislation and timely receive a certificate of tax registration from the authorized body of the country.
