United Arab Emirates is a Federation of seven Emirates-Abu Dhabi, Dubai, Sharjah, Ajman, Ras Al Khaimah, Umm Al Quwain and Fujairah -established in 1971. Each individual Emirate continues to exercise all its judicial and political powers except those that are not assigned to the Federation by the federal constitution or by agreements transferred to the federal government.
The federal government however maintains exclusive jurisdiction in a number of areas, such as foreign affairs, defence, health and education while the individual emirates retain exclusive jurisdiction in other matters including those relating to municipal work and natural resources of the Emirates concerned
Federal Tax Authority (FTA) was established pursuant to Federal Decree No 13 of 2016 and FTA will be responsible for the administration of all types of Federal tax. Each Emirate has its own tax Income-tax Decrees which predates the formation of UAE. These are presently not enforced except in case of foreign bank branches and oil and petrochemical companies who pay corporate income tax by special agreement with the Ruler of each of the Emirates.
Once FTA promulgates federal laws, these decrees may then cease to have relevance.
FEDERAL TAXES AND LEVIES
- Corporate Income Tax
Presently, there is no federal corporate income tax.
However foreign bank branches pay tax of 20% of the profits of branch as per separate agreement with each Emirate
Oil and petrochemical companies pay income tax of 50%-55% of the net profit as per separate concession agreement with each Emirate
- Branch Profits Tax.
Presently, there is no branch profit tax except of foreign bank branches and oil and petrochemical companies (see para ‘a’ above)
- Capital Gains Tax
Presently, there is no capital gains tax.
Federal Tax Authority
The Federal Tax Authority (FTA), the government entity responsible for the collection and management of federal taxes, was established in 2016 by the President of the UAE, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, via UAE Federal Decree 13 of 2016.
FTA mandate includes:
-achieving economic diversification through fiscal best practices
-Increasing the UAE’s non-oil revenues
-reducing dependence on oil resources in preparation for the post oil economy
-enhancing the UAE’s economic sustainability
-helping the business community and consumers understand their responsibilities with regard to taxation, and guide them to full compliance.
Federal Law No7 of 2017 on Tax Procedures has also been promulgated. The said Law provides for generalised tax administration procedures including penalties for all types of taxes and their compliances to be promulgated by the Federal Government Decrees. Initially VAT and Excise Tax will be administered by the FTA and other taxes could be added in due course.
Value Added Tax
UAE has implemented Value Added Tax (VAT) with effect from 1 January 2018 along with Saudi Arabia as part of Gulf Co-operation Council Economic union agreement. Other GCC countries (Bahrain, Sultanate of Oman, Kuwait and Qatar) are expected to do so on or before 1 January 2019 at the latest.
VAT registration will be mandatory for revenue above AED 375,000 million (US 100,000). For revenue between AED 187,500 and AED 375,000 VAT registration will be voluntary.
There are limited items covering zero rate (such as exports, basic healthcare, private school education and public funded health education, international transportation of passengers and goods) for which VAT input credit will be available for VAT registered taxable persons.
There are limited exempt items (such as margin financial products, bare land, residential properties and life insurance) for which VAT input credit will not be available to taxable persons.
All other supply of goods and services will be subject to standard rate of 5%. Imports of goods will be subject to reverse charge mechanism.
Excise Tax is introduced across the UAE with effect from 1 October 2017. The Excise tax are as under:
-50% for carbonated drinks
-100% for tobacco products
-100% for energy drinks
Above goods are referred to as “excise goods”. When considering whether a product is an excise good, the following definitions apply:
Carbonated drinks include any aerated beverage except for unflavoured aerated water. Also considered to be carbonated drinks are any concentrations, powder, gel, or extracts intended to be made into an aerated beverage.
Energy drinks include any beverages which are marketed, or sold as an energy drink, and containing stimulant substances that provide mental and physical stimulation, which includes without limitation: caffeine, taurine, ginseng and guarana. This also includes any substance that has an identical or similar effect as the aforementioned substances. Also considered to be energy drinks are any concentrations, powder, gel or extracts intended to be made into an energy enhancing drink.
Tobacco and tobacco products include all items listed within Schedule 24 of the GCC Common Customs Tariff.
- Dividend Distribution Tax
Presently, there is no dividend distribution tax.
- Fringe Benefits Tax
Presently, there is no fringe benefits tax.
- Wealth Tax
Presently, there is no wealth tax.
- Gift Tax
Presently, there is no gift tax.
- Estate Duty
Presently, there is no estate duty.
- Personal Tax
Presently, there is no personal tax.
- Minimum Alternate Tax
Presently, there is no minimum alternate tax.
LOCAL (STATE/TERRITORY) TAXES
There is no stamp duty. However, there are various fixed transaction charges for processing of visa, work permit, notarization, vehicle registration and other services from government departments.
There is no payroll tax. However, in case any UAE National is employed in the private sector, then the employer must pay monthly contribution to a pension fund at the rate of 12.5% of the contribution salary (i.e. basic salary and allowances). Additional contribution of 5% is due from the employee which the employer deducts from the employee’s salary and pays to the pension fund..
Land & Property Tax
4% registration tax is payable on sale/transfer of properties.
On rented property (residential and commercial) 5% of rental value is payable in Dubai, (as against 3% in Abu Dhabi and 4% in Sharjah).
In case of hotels, serviced apartments and clubs, Dubai Tourism Board Tax is 10% of the room and other revenue, and 10% service charge. In Abu Dhabi municipality tax rate is 6%, tourism levy of 4%, in addition to 10% service charge.
Under the terms of the Gulf Co-operation Council regulations (comprising the member states of UAE, Saudi Arabia, Qatar, Oman, Kuwait and Bahrain), a unified customs tariff of 5% of the c.i.f. value applies to the taxable imports of all of the GCC member states as from 1 January 2003. All existing taxes and duties on imports within the GCC member states have been abolished.
Tobacco and tobacco products are subject to a 100% customs duty, and for alcohol the rate is 50%.
Exemptions from customs duties apply in the UAE and other GCC member states, to various items including basic foodstuffs, raw materials for manufacturing industries, spare parts for civilian airlines, diplomatic and consular missions’ imports, imports for military and internal security forces, personal effects and charitable organizations’ imports.
R & D Cess
There is no R & D cess
TAX HOLDAYS & INCENTIVES
There are no special incentives for exports.
Each of the seven Emirate has its own free zones. These free zones have various benefits such as:
- 100% foreign ownership
- no restriction on repatriation of capital or income
- no customs duty for imports into free (but any sales outside free zone will be subject to customs duty)
- guarantee of no personal or corporate income tax for 15/50 years, renewable thereafter
- single window licensing procedures
Some of the important free zones and their websites are as under
-Jebel Ali Free Zone (www.jafza.co.ae)
-Dubai Airport Free Zone (www.dafza.gov.ae)
-Dubai Internet City (www.dic.ae)
-Dubai Media City (www.dubaimediacity.com)
-Knowledge Village (www.kv.ae)
-Dubai Maritime City (www.dubaimaritimecity.ae)
-Dubai International Financial Centre (www.difc.ae)
-Sharjah Airport International Free Zone (www.saif-zone.com)
-Hamriyah Free Zone (www.hamriyahfz.com)
-Ajman Free Zone (www.ajmanfreezone.gov.ae)
-Ras Al Khaimah Free Zone (www.rakftz.com)
-Fujairah Free Zone (www.fujairahfreezone.com)
An entity manufacturing goods in UAE can export its goods to GCC countries without duty if its manufacture involves 40% value addition and the entity is owned 51% by GCC National.
FOREIGN TAX RELIEF
- Tax credit under tax treaties
Although these provisions exist under the Treaties, they are of academic use since there is no personal or corporate income tax in UAE.
- Unilateral tax credit where there is no tax treaty
- RELATED PARTY TRANSACTIONS
In the absence of taxation, there are no detailed rules for such transactions.
- DOUBLE TAXATION TREATIES
UAE has signed double tax avoidance treaties with a number of countries such as:
Albania, Algeria, Andorra, Argentina, Armenia, Australia (pending), Austria, Azerbaijan
Bangladesh, Barbados, Belgium Belarus, Belize, Benin, Bosnia & Herzegovina, Brunei, Bulgaria, Burundi
Cameron, Canada, Chad, China, Colombia, Comoros Islands, Costa Rica, Croatia, Cyprus, Czech Republic
Ecuador, Equatorial Guinea, Egypt, Estonia, Ethiopia
Faroe Islands, Finland, France
Gambia, Germany, Greece, Guernsey, Guinea
Hong Kong, Hungary
India, Indonesia, Iraq, Ireland, Italy
Japan, Jersey, Jordan
Kazakhstan, Korea Republic, Kosovo, Kyrgyztan
Latvia, Lebanon, Libya, Liechtenstein, Lithuania, Luxembourg
Macedonia (FYR), Malaysia, Malawi (pending), Maldives, Malta, Mauritania, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco, Mozambique
Nepal, Netherlands, Nigeria, New Zealand
Pakistan, Palestine, Panama, Paraguay, Poland, Portugal
Romania, Russia, Rwanda
Senegal, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, St Kitts & Nevis, Sudan, Switzerland, Syria
Tajikistan, Thailand, Tunisia, Turkey, Turkmenistan
Ukraine, United Kingdom, USA (FATCA and Transport), Uruguay, Uzbekistan
Venezuela, Vietnam, Yemen
TAX RESIDENCY CERTIFICATES
Tax residency certificates (TRC) are issued by Ministry of Finance in case of
-individual (AED 2,100 Ministry fees)
-non-individuals (AED 10,100 Ministry fees)
TRC is issued in relation to a specific country with which UAE has DTAA treaty.
Detailed documents need to be submitted to the Ministry for TRC