If you are thinking about living and working in Dubai, you have probably heard that there is no income tax in Dubai.
This is correct...
is levied against your personal income if you go and work in Dubai or if you have an investment property in the city and rent it out for profit.
However, this is not the entire picture. Which is why, we lay out the facts about tax in Dubai to set the record straight.
A Tax Free Emirate?
Is it really tax-free in Dubai? Yes, it is - but not in all circumstances! There are times when you will have to face tax, and there are tips that you need to know about taxation in Dubai if you are thinking of going to live and work in the emirate.
Dubai is also one emirate out of seven that form the country United Arab Emirates; and some taxes are levied on the national level.
The UAE levies no taxation on personal income: what is more, in reporting on a broadcast last year, Sheikh Mohammed bin Rashid Al Maktoum, the Vice President and Prime Minister of the UAE and the Ruler of Dubai as having stated that: “his country would never adopt an income tax as a way to tackle the deficit. ‘My reply is: No income taxes.’”
This means that it is unlikely that tax will ever be levied on an individual’s income in Dubai. However, if you earn your income in Dubai but are tax resident elsewhere, you may be subject to taxation on your income – this is because your tax obligations also depends on where you are resident for taxation purposes.
For example, if you live in the UK and have an investment property in Dubai from which you earn a rental income, you will have to declare this income on your UK tax return and potentially pay tax on it if your overall earnings are above the nil rate band for income tax.
If on the other hand you move permanently to live and work in Dubai, or you become non-resident for tax purposes in your home country, then can earn your salary in Dubai 100% free of income taxation.
No Oil Income in Dubai
Before we continue on the taxes that do exist in Dubai, it is important to dispel a common myth that there are no taxes in Dubai because of oil income. This is not true; Dubai's oil peaked a long time ago. Today, less than 1% of Dubai’s GDP is from oil.
It is Abu Dhabi that heavily relies on oil and gas exports to generate income. Dubai has found other ways to generate income, mostly by facilitating tourism and business.
Other taxes in Dubai
In terms of other taxes in Dubai, they do exist. For a start, the profits of international banks and energy firms operating in the UAE are taxed at the federal level.
Further, you are taxed on any visit to a hotel in Dubai or even a meal out: tax adds 10% to your bill. Alcohol is heavily taxed upon importation, it is 50% to bring it in to the country and then another 30% if you have a liquor license and buy alcohol for home consumption.
In terms of property taxes there is a 4% land registration fee on transfers of property paid to the Dubai Land Department. Moreover, the Dubai municipality currently taxes 5% on annual rental value for commercial properties, known as market fees
(paid by property owners), and 5% for residential properties, also known as housing fees
(paid by tenants).
The Dubai government also generates income from providing services and issuing business licenses, the later being (significantly) more expensive than in other countries. There are also fees on power's of attorney and other legal documents. These can be substantial, for example for legalisation of corporate documents for international use. All these fees act as a de-facto tax on doing business in Dubai.
Driving on roads in Dubai is also subjected to toll payments, applied to maintenance of said roads.
And finally, in 2018, the UAE introduced a 5% VAT to mostly all purchases of services and goods sold in the UAE.
Corporate taxes in the UAE
In 2022, the UAE government announced the introduction of a corporate tax. While up until now there was not any kind of income tax, corporate income (not personal income) is now to be taxed.
This is regrettable, since the UAE was a shining example that a country can be run with people and businesses paying for what they use and keeping what they earn; as we all have seen, it lead to an explosion in development.
Fortunately, small enterprises remain exempt from taxes and the tax rate is low. The coming UAE Corporate Tax (CT) rates are:
0% for taxable income up to AED375.000 (USD$100.000)
9% for taxable income above AED375.000 (USD$100.000)
a different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to 'Pillar two' of the OECD Base Erosion and Profit Shifting Project.
The UAE’s corporate tax rate will be one of the lowest worldwide of OECD members. The tax rate of 9% remains highly competitive in comparison to other jurisdictions.
More about the corporate tax can be found here
Do you want to live a tax-free live in the UAE?
You also can potentially earn your salary 100% free of tax in Dubai if you are tax resident in the emirate and have no other obligation to any other state for the payment of tax on foreign earned and sourced income.
In order to live in Dubai, you would have to obtain a residence permit.
Individuals, other than UAE and GCC citizens, must have a residence visa if they want to live in the UAE. Obtaining a residence permit is the primary condition for being considered as resident in the UAE. As a general rule, one has to have a sponsor in order to apply for a residence permit in the jurisdiction.
For many expatriates, the company that employs them will act as their sponsor and secure them residence visa. For those who do not come on an employment contract, there are two other ways for obtaining UAE residency:
Investment in real estate (property residence visa)
Set up your own company to act as sponsor
Real estate investor/property residence visa
The UAE government in June 2011 introduced a new system extending the validity of the visa granted to real estate investors for up to 3 years.
The following rules and conditions govern the issuance of a real estate investor visa:
The property is built and ready for accommodation;
the applicant proves ownership (title deed issued by the Land Registrar);
the property is worth minimum AED 1 million (equivalent to US$300.000) with no mortgage; and
the applicant’s income is higher than AED 10.000 (US$3.000) monthly.
Setting up your own company
The other way to obtain residency is through a corporate structure.
As a general rule, one has to have a sponsor in order to apply for a residence permit in the jurisdiction. For foreigners, setting up a company is a practical way of obtaining sponsorship. This company acts as the sponsor.
As far as the company is concerned, it must have physical presence in the UAE. In that regard, the most interesting and cost effective options are proposed by free zones situated in the northern emirates. Usually, these options consist of “flexi desks” or “flexi offices”.
Taxes in Dubai: Conclusion
Dubai remains a great and unique option if you wish to live in one of the most developed countries in the world without paying taxes on your income. There are fees on doing business, making use of government services and driving on the roads.
While these fees can be higher than you are used to, they only apply to those who use the services, which is a fair way of taxing.
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