The UAE
The United Arab Emirates, popularly known as the UAE – is a conglomeration of 7 Emirates, all of which are autonomous, self-governing entities, united by one federation. Each of the Emirates has local governments that act in collaboration. Taxes are imposed or removed only after a common acceptance from all Emirates. However, every emirate is free to decide on its tax rates. One common thing to note about the country is that its citizens are very much free from the taxation burden.
A Country With Great Economic Freedom
UAE is a free economy meaning that anyone residing anywhere in the UAE can enjoy a virtually tax-free life. Due to the extremely people friendly taxation policy of the UAE, the Wall Street Journal gave the country a 99.9 index rating. This rating means that UAE is a very favorable place for when it comes to the degree of economic freedom, the ratio of tax level to tax payments, ease of doing business in UAE, etc. Also, UAE was listed amongst the best places in the world for labor and business alike.
No Direct Taxation on People
The United Arab Emirates has completely eliminated any form of direct taxation on its citizens. All the money that the government earns in the form of taxes comes through indirect taxation.
For clarity, these are the taxes eliminated by the government of UAE:
- Income Tax
- Corporate taxes
- Value-added Tax
- Capital-Gains Tax
However, be noted these taxes are not absent altogether. Some Emirates impose some form of corporate taxes.
Value Added Tax to be Levied
The UAE government, over worries of fluctuating economic conditions, and falling crude oil prices, has finally decided to impose a Value Added Tax, payable by the end users of all goods and services. The Value Added Tax (VAT), which was not present in UAE so far, will now be levied on all goods and services with the exception of food, healthcare, and education. The VAT will be imposed at a low rate of 5% on all goods and services, in effect from January 1, 2018. This was done to help the economy of UAE, which is largely dependent on oil exports for most of its income to remain stable.
The government of UAE is expecting to be able to collect approximately Dh12 Billion in revenue from the 5% VAT it plans to impose, which is approximately 0.9% of its GDP of USD 371 Billion.
Indirect Taxation
In The Emirate of Dubai, or simply Dubai, all companies and financial institutions which operate in the banking, oil & natural gas sector are subject to taxation; termed as corporation tax. The tax rate directly depends upon the valuation of the company or amount of the that company’s working capital.
Current tax rates are as follows:
| Working Capital Amount (Dirham) | Taxation Rate (in % of Amount) |
| 1-2 Million | 10% |
| 2-4 Million | 30% |
| 4-5 Million | 40% |
| >5 Million | 50% |
It is to be noted that these taxations are present primarily in three sectors: Banking, Oil & Natural Gas and Tourism. Other sectors may be exempted from this kind of taxation.
Real Estate Taxation
The UAE follows a fixed percentage scheme while levying taxes on sales/purchases, renting and leasing of properties in the country.
Scheme:
– On purchase of immovable property in UAE, a one-time cadastral fee is to pay at 4% of the purchase price of the property. Both the buyer and the seller are expected to pay 2% each.
– On renting, a similar fee is charged at 5%, with both parties expected to pay the same share.
– Leasing a private land is taxed at 10% for commercial real estate areas.
Double Taxation Treaties and Agreements
The UAE has signed numerous treaties with many nations where double taxation on imports and exports of many goods & materials, both finished & unfinished can be avoided. Currently, UAE has agreements with over 60 countries, with clear statements on avoidance of double taxation by any of them. This helps businessmen and entrepreneurs in keeping their prices in proper accordance.
Free Trade Zones
Free trade zones are areas designated by the government, with special facilities for businesses to flourish. Adoption of special economic zones has boosted the economy of the country by leaps and bounds and is one of the key factors behind the economic success of UAE.
These special zones are regulated by separate government bodies, created specifically for that very purpose. These bodies control the registration, taxation, licensing and other matters between the government and registered companies. It must be noted, however, that there are other limitations to companies registered in these special zones, having given the status of FZC.
All companies that possess the FZC status are fully exempted from taxation including their employees. Also, these zones do not require a local sponsor to have your company registered, as 100% FDI is allowed.
FZC companies enjoy guaranteed tax-free repatriation of investment at the legislative levels.
Conclusion
The United Arab Emirates has opened its gates in terms of economy for people to come and work here. The taxation system is the UAE has been specifically designed to provide a favorable environment to investors and MNCs. Also, the government believes in earning their money from other sources instead of putting a burden of taxes on its people. They have removed all barriers to trade which cause people to avoid starting a business here. Any person or a company in UAE enjoys a lot of economic freedom. The UAE is a tax haven for anyone who wishes to live here.