International Tax

The United Arab Emirates has undergone a substantial tax overhaul in the past few years. While it has managed to maintain its status to remain a tax-competitive region, its government has lately imposed an array of indirect taxes. UAE further greatly expanded its tax treaties’ connections while adhering to its global commitments through additional profit shifting and base erosion procedures, along with additional steps to improve transparency and information exchange. It has all made a substantial impact on global investment across borders. This article mainly focuses on International Taxation UAE and provides highlights of international taxation in UAE. 

Highlights of International Taxation UAE

Let’s have a look at the substantial network of international tax in the UAE;

• Corporation Taxation

The UAE has recently imposed a corporate tax on business profits in October 2022. Before this, there was no corporate tax in the UAE. Now, the taxable persons will have to pay a corporate tax in the UAE if the income they earn is taxable. The corporate tax rate in the UAE is 9 percent if the taxable income of a taxable person increases from 375,000 dirhams in a single taxable period. There are certainly some exemptions i.e., government or government-controlled entities, non-extractive and extractive businesses, investment funds, public benefit businesses, social security businesses and some juridical persons don’t have to pay corporation tax in UAE. You can look for international tax services in UAE like Farahat and co. to find out if your business falls under the scope of this law.

• Anti Avoidance Regulations

Under anti avoidance regulations, the UAE has recently introduced transfer pricing regulations with the introduction of corporate tax. This essential step of the UAE government is in line with the OECD’s (Organization of Economic Cooperation & Development) project on BEPS (Base Erosion & Profit Shifting) aimed at handling tax avoidance and bringing more transparency, substance, and coherence to the global taxation system.

• Economic Substance Requirements

The economic substance regulations don’t actually impose some kind of tax on businesses; however, they require some businesses to adhere to some substance rules. Businesses that execute any of the nine relevant activities i.e. fund management, insurance, banking, headquarters, shipping, lease finance, intellectual property, holding company, distribution, and service centre, have to stick to these ESR regulations. Avoiding ESR regulations attracts hefty penalties. 

• Value Added Tax (VAT)

Businesses that are engaged in the importation or supply of services or goods have to pay VAT in the UAE. The reduced and standard rates of VAT in UAE are 0 percent and 5 percent, respectively. However, the supply of some services or goods is zero-rated making some businesses exempt from VAT. 

• Social Security Contributions

The employees and employers in the UAE who are UAE nationals’ contribution rates for pensions are 5 percent and 12.5 percent, respectively. Monthly contractual salary makes the basis for these contributions which also includes basic allotments depending on whatever is agreed upon in the general employment agreement.

• Transfer Tax

A transfer tax is imposed on some indirect and direct transfers of real property located inside the UAE. Some partial transfers of real property are also taxed in some cases.

• Custom Duty Tax

Businesses that import goods inside the UAE have to pay customs duty tax when goods first enter the UAE. The customs duty tax is generally 0 percent to 5 percent depending on the type of goods that are imported. 

• Excise Tax

Businesses have to pay excise tax on exciseable goods when they are stockpiled, manufactured, or imported in the UAE. Excisable goods include electronic cigarettes, tobacco and its products, energy drinks, sweetened beverages, and carbonated beverages.

• Municipal Tax

Businesses involved in property rentals and certain leisure or hotel services have to pay municipal tax in the UAE. In Dubai, commercial properties are taxed 10 percent municipality fee. 

To know more deeply about these taxes, you can get assistance from an international tax consultant in UAE. 

Tax Reliefs in UAE

Following is an overview of taxes that you don’t have to pay while you are residing or working in the UAE;

• The UAE does not take foreign exchange control when it comes to investment.
• The UAE does not take any surtax.
• The UAE does not take any alternative minimum tax.
• The UAE does not take any tax on dividends.
• The UAE does not take any tax from individuals, so there is no system of individual tax residence in the country. However, those individuals who meet the requirements of the Ministry of Finance get a tax residence certificate from MoF.
• The UAE does not take any withholding tax.
• The UAE does not apply any interest deduction limitation regulations.
• The UAE does not take any exit tax.
• The UAE does not take any payroll tax.
• The UAE does not take any capital duty tax, however, some attestation, notary, or registration charges may apply.
• The UAE does not take any real property tax, however, some attestation, notary, or registration charges may apply. When it comes to residential rental, you might have to pay some municipality charges in some emirates depending on different emirates. Under specific circumstances, a charge can be imposed on partial transfers.
• The UAE does not take any stamp duty tax, however, some companies functioning in free trade zones have to pay an administrative charge for share transfers to other companies in the UAE.
• The UAE does not take any tax on net worth or net wealth.
• The UAE does not take any tax on inheritance. The authorities use Islamic rules and principles to deal with inheritance in case a registered will is not present.

Conclusively, the topic of international taxation UAE is complex. One needs a thorough understanding of these taxes before starting a business in the UAE. However, one can hire international taxation advisory services in Dubai to get adequate assistance in coping with UAE taxation.