Due to the discovery of oil deposits in Dubai five decades ago, along with the revenue generated from hydrocarbon exports, tax levels in the emirate have remained consistently low. This has enabled the area to enjoy significant investment into its tax-free zones which has seen Dubai become one of the region’s main business powerhouses during that same period.
Even though the size of city only equates to 5% of the total area of the United Arab Emirates, it is now one of the most important in the entire country due the investment possibilities it presents to domestic and international investors.
Tax expectations for those in the UAE
For most people living and working in the city, there is no requirement to pay income tax, while business owners do not have to pay any withholding or capital taxes. However, life in Dubai is not completely tax-free for businesses, as a 10% municipal tax has to be paid on the annual rental value of their business properties. Also recently introduced across the entire country was Value-added tax (VAT).
Only banks and oil companies are required to pay corporate income tax in the UAE. Businesses working in the oil sector may need to pay as much as 55% on UAE-sourced taxable income, which is set via their concession agreements. They are also required to pay royalties in line with their levels of oil production. It is slightly different for banking organisations who have to pay up to 20% on taxable income, which is based on audited financial statements.
International tax agreements
The UAE government have signed a growing number of double taxation treaties with as many as 115 countries, although currently, only 28 of these have been fully ratified. These treaties hope to make the region a more attractive territory for businesses to operate within by reducing taxation imposed on profits made abroad by foreign corporations who are set up in the area.
Thanks to these treaties, any profits that are generated by interest, dividends, shares or royalties are only taxable in the company’s native country. Although there is no corporate income tax in the UAE, the treaties do not mention that income has to be taxed in order to qualify for the benefits they provide.
The introduction of VAT in the UAE at the start of 2018 applies to companies whose goods or services were higher than the minimum amount of AED375,000 in the last 12 months. Businesses who earn more than this limit within a 30-day period must also register to pay VAT.
If taxable goods or services exceed a total value of AED187,500 over the previous 12 months, taxpayers are also able to voluntarily register. This is also the case if a company expects to exceed this threshold within a 30-day period. As is the case in many other countries around the world, there are VAT concessions available for use of certain services related to education, real estate, transport and the finance and healthcare sectors.