Dubai is a city with an ever growing economy that according to some, has based its foundations, on being one of the famous ‘tax havens’. Like many other Middle East countries, the UAE earns its revenue mainly through the oil industry and offers tax-free living to attract global companies and talent to diversify and enrich their economy further.
Therefore, everyone thinks that in Dubai you do not pay taxes; but is it really like that? Is it really tax-free in the UAE? Yes, it is but only in certain circumstances!
But it is also true that the UAE levies no personal taxation on income and it is unlikely that tax will ever be levied on an individual’s income in Dubai.
There are times when you will have to face tax, and there are different tips that you need to know about taxation in Dubai if you’re thinking of going to live and work in the emirate.
Presently, the Dubai government has only ratified the tax on profits of the branches of foreign banks and of all companies operating in the oil, petrochemical and gas sectors.
Foreign banks are required to pay 20% on their income while for oil companies the percentage rises up to 55% in Dubai (50% in the rest of the Emirates), in addition to having to pay various types of royalties on production.
Apart from these, there are no taxes on capital gains, capital and dividends between members and in fact there is no tax legislation on income taxes. This does not mean, however, that there are no costs to be sustained. In order to have your own business in the UAE you need to pay an annual license fee, which can varies depending on the kind of activity and where this is opened.
Moreover, if you open your business outside the Free Zone, which allow 100% foreign ownership, you need to have a local partner at 51% who is in any case entitled to a profit which can be fixed or variable, depending on the agreements. This is a mandatory cost and in practice is a tax.
In addition, companies need resident visas for the entrepreneur, for his family and / or employees and also then, there is the newly-implemented E Channel (a sort of company registration needed to issue the necessary Immigration Card to issue visas). And from 4 February all those who want to apply for a new work visa must produce a certificate of good conduct that must be translated, certified and stamped by the proper Embassy and the Ministry of Foreign Affairs.
Other taxes are Tourism Fee in the Hotels and a motorway toll. A new tax called Innovation Fee of 10 AED, has been recently introduced on all transactions concerning government procedures; the revenues generated will finance the Dubai Future Foundation (DFF) and the subsequent development of the Emirate.
The majority of customs duties are very low. Some categories of products like the materials to be used for the production of goods to be re-exported are excluded from custom duties. For items like tobacco, alcoholic beverages, energy drinks customs duties reach the 100% of the product value.
Starting from 1st January 2018 the United Arab Emirates introduced VAT for the possible economic impact due to a depletion of oil resources: a true revolution in the economic and financial landscape. The VAT is set at 5%. Basic foodstuffs, education and health are exempted.
At present, companies with an annual turnover of between AED 187,500 and AED 375,000 can choose whether to register or not, while those with less than AED 187,500 will remain exempt for now. The change has far-reaching implications for companies that will need to make use of professional figures or service companies for their management. This will be also the occasion for whom want to open his own accountancy firm in Dubai and in UAE.
So, you might not have to pay real taxes in the UAE but, there are however a number of costs to consider when doing business. Is it convenient to live or open a company in Dubai?
Taking a look at neighbouring countries (in particular Qatar and Saudi Arabia), you can see that businessmen opening activities there need to consider the cost of setting up the companies, the possible share capital to be paid, the mandatory office that will pay 10% and 20% of taxes respectively on all that is generated with foreign countries. And even if all the generated income is foreign, a certified auditor needs to be accounted for.
So today opening a business in a Free Zone still remains a good option since there is no visa requirement, physical office, accounting records and share capital to be paid.