Many foreigners are attracted to the UAE because of the country's tax structure, or rather, the absence of taxes. Employees, for example, do not have to pay income tax, and neither do corporations nor heirs.

Until the beginning of the year 2018, there was absolutely no VAT. This sales tax was imposed at a comparatively modest rate of 5%. Energy drinks and cigarettes are two examples of the types of items that are subject to an additional tax known as an excise tax. This tax is charged because the government believes that these products pose a threat to both human health and the environment.

Many companies seek the guidance of tax advisory services to stay well-informed of the latest changes, which is a sensible thing to do, given how intricate this tax system can be.

Let’s explore the details.

Federal Taxes: Taxes Imposed by UAE’s Government

UAE residency visas are a legitimate way to minimize tax liabilities.

Income Tax 

Income in the UAE is not taxed. Since there is no personal income tax in the United Arab Emirates, residents are exempt from filing a tax return. The same holds true for those who call the Emirates home yet are self-employed or engaged in freelance work.

Individual Tax

Workers who are citizens of the Gulf Cooperation Council ( including UAE) are required to pay 17.5% to the UAE's social security system. Employees who are not citizens of the United Arab Emirates pay 0%, while the employer covers the remaining 12.5%. Employees of enterprises and branches located in a free trade zone (FTZ) are likewise subject to social security requirements. Residents in other GCC countries may be required to make various social security payments than citizens of their native country. In contrast, non-GCC citizens are not required to pay into the UAE's social security system.

Corporate Tax 

Only oil firms and international banks are subject to corporate taxes in the United Arab Emirates. However, firms operating in one of UAE’s 45 free trade zones are not subject to taxes for an initial and extendable period of time. Gains on investments are not subject to taxation unless the corporation is subject to another kind of income tax.

Beginning in 2023, enterprises with a net income of AED 375,000 or higher will be subject to a new federal corporate tax of 9%.

Double taxation

The United Arab Emirates (UAE) is actively working to extend its network of Bilateral Investment Treaties (BIT) and Double Taxation Agreements (DTA) in an effort to foster strategic global collaborations. Direct and indirect taxes on investments and earnings are either completely or partially waived or reduced due to the approximately 193 DTAs and BITs that the UAE has achieved.

Property transfer tax

In the United Arab Emirates, real estate transfers are subject to transfer fees. This is different in each Emirate. In Dubai, it is 4%. Despite the fact that both the seller and the buyer are responsible, the transfer fee is typically paid by the buyer.

Inheritance tax

There is no system in place to collect inheritance taxes. In the absence of a will, inheritance is handled as per Islamic Shari'a rules.

Tourist facility tax 

The following are examples of taxes that may be charged at places like restaurants, resorts, and hotels:

• 10% off the cost of the stay
• A ten per cent service fee
• Tax on the municipality (ten per cent)
• City tax ranging from 6–10%
• The charge for tourism (6%)

Regional Taxes: Taxes are levied locally inside the UAE

Free trade zones 

UAE free-trade zones feature separate tax, customs, and import laws. Emirates has almost 40 zones. Within these specific zones, firms are free from corporation tax for 50 years and export and import taxes are 100% exempted.

Tourism fees per Emirate 

Each hotel room in Dubai will cost you between AED 7 and AED 20 per night, regardless of how long you plan on staying there. This varies by hotel rating. Abu Dhabi adds 4% and AED 15 each night, each room to hotel bills. Ras Al Khaimah restaurants levy a $15 tourist fee each night.

Rental tax 

Emirates has different rent taxes. In Dubai, residential renters pay 5% of their yearly rent and business tenants 10%. UAE nationals don't pay property tax in Abu Dhabi, while expats do (3%). Sharjah's renters pay 2%.

Value-added-taxes: What Tax Advisory Services Say

In the UAE, there are two types of taxes that are imposed on products and services: value-added tax and excise duty.

VAT

Value-added tax in the Emirates is 5%. Some things are VAT-exempt. In 2020, the UAE exempted certain COVID-19 personal protective equipment, including masks, gloves, disinfectants, and antiseptics. Additionally, the following products and services are exempt from VAT:

• Exports outside the GCC
• Transport internationally
• Investable metals
• New homes
• Education and healthcare.

Excise Tax

In 2017, the UAE introduced an excise tax. The government imposes this indirect tax on products it deems to be hazardous to the environment or public health. These are the types of goods that are subject to the tax:

• 50% on drinks with carbonation. Products that may be used to make fizzy drinks may also fall under this category.
• One hundred per cent on energy beverages that include stimulating ingredients such as caffeine, guarana, taurine, and ginseng. It could also be used for things that could be used to make an energy drink.
• 100% on tobacco and tobacco products, including Schedule 24 of the GCC Common Customs Tariff.

Tariffs

For most commodities, customs charges are 5% of the CIF value. Certain categories are exempted, but alcohol and cigarettes carry 100% customs duties.

Also Read : Tax Auditing in UAE- How Important is It?

Tax advisory services: Professional tax help in the UAE

Many residents of the United Arab Emirates (UAE) may be without employing an accountant since they are exempt from paying income tax.

However, people who run more substantial enterprises would be well to seek out unbiased financial guidance of tax advisory services on the subject of corporate tax obligations. If you need help with tax advisory, don't hesitate to get in touch with Fortius Consulting Services, which is widely regarded as one of the most reputable business consulting services.