The United Arab Emirates (UAE) has a taxation system that is relatively simple compared to other countries. This article will provide an overview of how taxation works in the UAE, including double taxation agreements, the main taxes expats need to be aware of, tax breaks, how and when to file a tax return as an expat, and tax exit procedures.
How the Taxation System Works in the United Arab Emirates
The taxation system in the UAE is administered by the Federal Tax Authority (FTA). The tax system is divided into two types of taxes: direct and indirect. Direct taxes are levied on individuals and businesses based on their income, while indirect taxes are imposed on goods and services.
Individuals are not subject to income tax in the UAE, regardless of whether they are resident or non-resident. However, businesses are subject to corporate tax, which is currently set at a rate of 15%.
Double Taxation Agreements
The UAE has entered into double taxation agreements (DTAs) with several countries, including major trading partners such as the United Kingdom, France, and Japan. DTAs are agreements between two countries that aim to eliminate double taxation of income earned in both countries. These agreements help to promote cross-border trade and investment and ensure that individuals and businesses are not taxed twice on the same income.
Under DTAs, residents of one country may be eligible for tax benefits, such as reduced withholding tax rates, when receiving income from the other country. Expatriates who are residents of a country that has a DTA with the UAE may be able to take advantage of these benefits.
Main Taxes for Expats in the United Arab Emirates
As an expat working or doing business in the UAE, there are several taxes that you need to be aware of. These include corporate tax, value-added tax (VAT), and excise tax.
Businesses operating in the UAE are subject to corporate tax, which is currently set at a rate of 15%. However, certain sectors, such as oil and gas, are subject to different tax rates.
Value-Added Tax (VAT)
VAT is a tax on goods and services that is levied at a standard rate of 5%. Certain goods and services, such as healthcare and education, are exempt from VAT.
Expats who are providing services in the UAE may be subject to VAT if their annual revenue exceeds a certain threshold. The current threshold is AED 375,000 per year.
Excise tax is a tax on certain goods, such as tobacco and sugary drinks, that are deemed harmful to public health. The tax rates vary depending on the product.
Special Tax Breaks for Expats
Expats who are working or doing business in the UAE may be eligible for certain tax breaks. These include:
No Income Tax
As mentioned previously, individuals are not subject to income tax in the UAE, regardless of whether they are resident or non-resident.
Expats who are not resident in the UAE may be eligible for a VAT refund on purchases made in the UAE. The refund is available for purchases made at certain retailers and subject to certain conditions.
Filing Tax Returns as an Expat
Expats in the UAE are not required to file a personal income tax return, as there is no income tax on individuals. However, businesses are required to file a corporate tax return annually.
Employers are responsible for deducting social security contributions from their employees’ salaries and remitting them to the relevant authorities.
Tax Exit Procedures
Expats who are leaving the UAE to move abroad are not required to complete tax exit procedures, as there is no personal income tax in the UAE. However, businesses that are closing down or ceasing operations in the UAE are required to file a final tax return and settle any outstanding tax liabilities.
In conclusion, the taxation system in the UAE is relatively simple compared to other countries, with no personal income tax on individuals and a corporate tax rate of 15% for businesses. Expats who are working or doing business in the UAE should be aware of their tax obligations and take advantage of any tax breaks or incentives that they may be eligible for. Filing tax returns and completing tax exit procedures are important steps to ensure compliance with the law and avoid any potential legal issues. Expats should consult with a tax professional to ensure that they are meeting all tax requirements and taking advantage of any available tax benefits.