United Arab Emirates: Tax System

Tax Rate For Foreign Companies

As a general rule, taxation in the UAE is based on the territoriality concept (and not on the worldwide one). Non-resident companies carrying out a trade or business in an Emirate through a permanent establishment in that Emirate are formally taxable under the relevant Emirate tax decree.

Branches of foreign banks are taxed at 20% in most Emirates.

Capital Gains Taxation

Capital gains are generally not subject to tax, unless they are derived by a company that is taxable under the purview of income tax or banking tax decrees.

Main Allowable Deductions and Tax Credits

Deductions are determined based on accounting principles and the tax decrees of the various Emirates. Expenditures that are not of a capital nature and are incurred wholly and exclusively for the purposes of the business are generally deductible.
Companies can deduct up to 50% of the expenses incurred for entertaining customers, shareholders, suppliers, and other business partners, including costs for meals, accommodation, transportation, admission fees, entertainment facilities, and equipment, as well as any other expenses specified by a Cabinet decision.
The deduction of net interest expenses is limited to 30% of tax-adjusted EBITDA.

Non-deductible expenses include fines, penalties (excluding compensation for breach of contract), bribes or illicit payments, donations made to entities that are not Qualifying Public Benefit Entities, dividends/profit distribution, CT, recoverable VAT, taxes imposed outside the UAE, and any other expenses specified in a Cabinet decision.

A business is permitted to offset tax losses against the taxable income of future tax periods when computing the taxable income for that period. However, during any tax period, the set-off amount cannot exceed 75% of the taxable income for that specific period. Any remaining tax losses can be carried forward indefinitely to subsequent tax years.

Other Corporate Taxes

Most Emirates impose a municipality tax on properties, generally by reference to the annual rental value. The tenants are normally the taxpayer, although in some cases separate fees are payable both by tenants and property owners. In the Emirate of Dubai, the municipality tax on property is currently imposed at 2.5% for commercial properties (borne by the owner) at 5% of the specified rental index for residential properties (paid by the tenant).
Furthermore, a registration fee may also be levied on the transfer of ownership of land or property. For instance, a land registration fee is levied in the Emirate of Dubai at a rate of 4% of the sale value of the property (also applicable on the direct or indirect transfer of shares in an entity that owns real property).

There is a social security regime in the United Arab Emirates that applies to UAE and GCC national employees only. In most of the Emirates, and for UAE national employees, social security contributions are calculated at a rate of 20% of the employee's gross remuneration as stated in the employment contract. Out of the 20%, 5% is payable by the employee, 12.5% is payable by the employer and the remaining 2.5% is financed by the Government; in Abu Dhabi, the overall rate is 20%, of which 15% is paid by the employer.
From January 1st, 2023, the unemployment insurance scheme introduced through Federal Decree-Law No. 13 of 2022 is applicable to both Emirati and foreign workers. The scheme is designed to provide financial assistance to eligible individuals in the public and private sectors in the event of unemployment. Subscribers to the scheme are classified into two categories based on their basic monthly salary. The first category comprises individuals earning AED 16,000 or less per month, while the second category includes those earning more than AED 16,000 as their basic salary. Subscribers in the former category must pay a monthly subscription fee of AED 5, while those in the latter category must pay a monthly subscription fee of AED 10.

The different Emirates impose hotel levies (for instance, a fee of between AED 7 to 20 per room/night plus 7% on the total value of the invoice is levied in Dubai, whereas in Abu Dhabi it is equal to AED 15 per room/night plus 6% on the room price). Municipality fees on hotel sales are levied in Abu Dhabi (4%) and Dubai (7%). Hotels in all Emirates levy an additional service charge set at 10% of the hotel sale revenue.

Other Domestic Resources

UAE Federal Tax Authority

Country Comparison For Corporate Taxation

Source: The World Bank - Doing Business, Latest data available.

Accounting System

Accounting Standards

IFRS financial statements are required for all companies listed on the UAE stock exchanges and for banks.

Accounting Law

The Commercial Companies Law of 2015

Difference Between National and International Standards (IAS/IFRS)

Companies are required to comply with IAS/IFRS norms. SMEs have the option to choose between IFRS for SMEs and full IFRS Standards.

Accounting Practices

Tax Year

From 1st January to 31st December.

Accounting Reports

Companies should provide an annual activity report audited by an auditor to the Ministry of Finance (for trading companies) or to the Ministry of Industry (for industrial companies). This obligation serves for the renewal of the company's licence.

Publication Requirements

The companies listed on the stock exchange should submit their accounts to the 'Emirates securities and commodities market authority' which imposes quarterly publication of balance sheets and income statements as well as an annually audited income statement.

Accountancy Profession

Accountants

Many local accountants are not from the Emirates, but rather from South Asia (India, Pakistan).

Member of the International Federation of Accountants (IFAC)

No.

Allowable Deductions and Tax Credits

No personal tax is levied in the UAE, hence tax deductions are not applicable.

Special Expatriate Tax Regime

There is no special tax regime for expatriates in the UAE.

Non-GCC national employees who completed at least one year of service are entitled to an end-of-service benefit calculated as 21 days per year of basic wages for the first five years of employment, plus 30 days per year of the basic wage for each additional year of service (capped at two years’ remuneration).

Capital Tax Rate

Capital gains are not subject to taxation.

Social security contributions only apply to GCC nationals, with rates varying according to the Emirate (5% is payable by the employee in both Dubai and Abu Dhabi).

From January 1st, 2023, the unemployment insurance scheme introduced through Federal Decree-Law No. 13 of 2022 is applicable to both Emirati and foreign workers. The scheme is designed to provide financial assistance to eligible individuals in the public and private sectors in the event of unemployment. Subscribers to the scheme are classified into two categories based on their basic monthly salary. The first category comprises individuals earning AED 16,000 or less per month, while the second category includes those earning more than AED 16,000 as their basic salary. Subscribers in the former category must pay a monthly subscription fee of AED 5, while those in the latter category must pay a monthly subscription fee of AED 10.