flag United Arab Emirates United Arab Emirates: Tax System

In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information

 

Corporate Taxes

Tax Base For Resident and Foreign Companies
A company is deemed to have a permanent establishment in the country if it has a branch, a place of management or another fixed place of business, or an agent that has and habitually exercises authority to conclude contracts on behalf of the foreign company.
 

Tax Rate

Corporate tax (effective from the financial years beginning on or after 1 June 2023)
  • 0% on taxable income not exceeding AED 375,000
  • 9% on taxable income exceeding AED 375,000
Tax on profits made by branches of foreign banks Generally 20%
Companies engaged in oil and gas and petrochemical activities progressive rates of up to 55% + rates under their individual UAE concession agreements
 
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 taxed at the corporate income tax rate, but gains from the sale of a participation are exempt if the participation exemption applies. Gains or losses from asset or liability transfers between group members, or from mergers and demergers, may also be exempt if certain conditions are met.
The participation exemption is applicable to income from participating interests of at least 5%, provided specific criteria are met: (i) a holding period of at least 12 months, (ii) meeting a subject-to-tax test at a minimum rate of 9%, (iii) entitlement to receive at least 5% of profit distributions and liquidation proceeds, and (iv) meeting an asset test ensuring no more than 50% of the participation's assets consist of non-qualifying ownership interests. Additionally, the subject-to-tax test is satisfied if the participation qualifies as a holding company or if underlying participations meet the conditions, or if it pertains to certain entities under corporate income tax law. This exemption covers dividends, profit distributions, gains or losses on disposal of the participation, and foreign exchange and impairment gains or losses, except for losses from liquidation. If the participation was acquired through a non-qualifying exchange or transfer, the exemption is suspended for two years.
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. However, this exemption does not apply if the net interest expense for the relevant tax period remains below the AED 12 million threshold. If the threshold is surpassed, the taxpayer can deduct the higher of either the threshold or 30% of 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, often based on the annual rental value, typically paid by tenants. In some cases, separate fees are charged to both tenants and property owners. For instance, in Dubai, the municipality tax on properties is currently 2.5% for commercial properties (paid by owners) and 5% for residential properties (paid by tenants). Additionally, a registration fee, such as the 4% land registration fee in Dubai based on the property's fair market value, may be imposed on property ownership transfers. This fee can also apply to the transfer of shares in entities owning real estate. Each Emirate administers these levies differently.Most Emirates impose a municipality tax on properties, often based on the annual rental value, typically paid by tenants. In some cases, separate fees are charged to both tenants and property owners. For instance, in Dubai, the municipality tax on properties is currently 2.5% for commercial properties (paid by owners) and 5% for residential properties (paid by tenants). Additionally, a registration fee, such as the 4% land registration fee in Dubai based on the property's fair market value, may be imposed on property ownership transfers. This fee can also apply to the transfer of shares in entities owning real estate. Each Emirate administers these levies differently.

The United Arab Emirates has a social security regime applicable solely to qualifying UAE and other GCC national employees, exempting non-GCC nationals. For UAE nationals (excluding Abu Dhabi), contributions are 20% of gross remuneration, with 5% paid by the employee, 12.5% by the employer, and an additional 2.5% from the government. In Abu Dhabi, the rate is 26%, with the employer contributing 15%, the government 6%, and the employee 5%. Contributions are capped between AED 1,000 and AED 50,000. Free Zone employees are also subject to social security obligations. Other GCC nationals follow the social security regulations of their home countries.

Most Emirates have hotel levies, which are charged on hotel room rental, services, and entertainment, administered differently in each Emirate. In Dubai, guests and hotel apartment tenants pay a Tourism Dirham fee ranging from AED 7 to AED 20 per room per night based on the hotel's star classification. In Abu Dhabi, hotels charge a tourism fee of 6% of the room rental and a destination fee of AED 15 per night. Dubai hotels also apply a 7% municipality fee on sales, while Abu Dhabi imposes a 4% municipality fee. Additionally, all Emirates charge a 10% service charge on hotel sale revenue.

Other Domestic Resources
UAE Federal Tax Authority
 

Country Comparison For Corporate Taxation

  United Arab Emirates Middle East & North Africa United States Germany
Number of Payments of Taxes per Year 5.0 20.8 10.6 9.0
Time Taken For Administrative Formalities (Hours) 116.0 204.0 175.0 218.0
Total Share of Taxes (% of Profit) 15.9 32.1 36.6 48.8

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

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Accounting Rules

 

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.
 
 

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Consumption Taxes

Nature of the Tax
VAT (value-added tax)
Standard Rate
5%
Reduced Tax Rate
Zero-rated items include exports of goods and services to outside the GCC, international transportation, and related supplies, supplies of certain sea, air and land means of transportation (such as aircrafts and ships), certain investment grade precious metals (e.g. gold, silver, of 99% purity), newly constructed residential properties supplied for the first time within three years of their construction, supply of certain education services, and supply of relevant goods and services, supply of certain healthcare services, and supply of relevant goods and services.
Exclusion From Taxation
Certain financial services (including life insurance and reinsurance of life insurance as well as financial services that are not conducted for an explicit fee, discount, commission, rebate or similar type of consideration), the supply of residential real estate, transactions in bare land and domestic passenger transport services are exempt from VAT.
Method of Calculation, Declaration and Settlement
A value-added tax has been implemented in the United Arab Emirates as of 1 January 2018 following GCC regulations.

Taxable individuals residing in the UAE must register if their taxable supplies surpass AED 375,000 in the preceding 12 months or are projected to exceed this amount within the next 30 days. Businesses based in the UAE can opt for voluntary registration if their taxable supplies are above AED 187,500 in the previous year or are anticipated to surpass this within the next month. Nonresident entities obligated to register for VAT to settle any tax liabilities on supplies in the UAE do not have a threshold requirement.

VAT returns are typically required either monthly or quarterly, contingent on turnover. However, the FTA retains the authority to specify a different period if deemed necessary. Returns must be electronically submitted through the FTA portal by the 28th day of the month following the end of the reporting period, or the next business day if the 28th falls on a weekend or national holiday. VAT payments for the reporting period are due on the filing date, typically made online.

Other Consumption Taxes
Excise duties were introduced in 2017 for three types of products: carbonated beverages and products with added sugar or other sweeteners (50%), tobacco and electronic smoking devices and tools (100%), energy drinks (100%).
Most Emirates have hotel levies, which are charged on hotel room rental, services, and entertainment, administered differently in each Emirate. In Dubai, guests and hotel apartment tenants pay a Tourism Dirham fee ranging from AED 7 to AED 20 per room per night based on the hotel's star classification. In Abu Dhabi, hotels charge a tourism fee of 6% of the room rental and a destination fee of AED 15 per night. Dubai hotels also apply a 7% municipality fee on sales, while Abu Dhabi imposes a 4% municipality fee. Additionally, all Emirates charge a 10% service charge on hotel sale revenue.

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Individual Taxes

Tax Base For Residents and Non-Residents

No personal tax is levied in the UAE. Individuals living and working in the country may be considered resident of the United Arab Emirates for purposes of a double tax treaty and obtain a UAE Tax Residency Certificate (under certain conditions).
Starting from March 2023, individuals can be considered a UAE tax resident if they satisfy any of the following conditions:

  • They have their primary or usual place of residence in the UAE and their centre of financial and personal interests is also in the UAE.
  • They have been physically present in the UAE for a consecutive period of 183 days or more within a 12-month period.
  • They have been physically present in the UAE for a consecutive period of 90 days or more within a 12-month period and are either a UAE national, hold a valid residence permit in the UAE, or are a citizen of any GCC member state, provided that they have a permanent place of residence or carry out employment or business activities within the UAE.
 

Tax Rate

No personal tax is levied N/A
Most Emirates impose a rental tax Residential tenants pay 5% of annual rent and commercial tenants pay 5% of annual rent in Dubai. Expat tenants pay 3% of annual rent whereas UAE citizens do not pay any rental tax in Abu Dhabi. All tenants pay 2% of annual rent as rental tax in Sharjah.
Real property tax A transfer charge is levied on the transfer of real estate in the UAE (4% in the Emirate of Dubai, borne equally by the buyer and the seller).
 
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.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
Double-taxation agreements, Ministry of Finance
Withholding Taxes
No withholding tax is levied by the federal government of the UAE.

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Latest Update: July 2024