Dubai is considered a tax-free city since no income tax is levied on the UAE government’s businesses and individuals. However, such taxes may be expected to be paid by foreigners registered for taxes in other countries but make income in Dubai. Nonetheless, during the repatriation of income to their home countries, Dubai has also negotiated numerous double taxation deals with other countries to eliminate taxes levied on foreign nationals.
How Does the Taxation System Work in Dubai?
- The Dubai tax system follows a series of tax decrees issued in 1969 and other tax laws administered by the UAE government in 2018, introducing the Value Added Tax (VAT) and the excise tax.
- Dubai companies must electronically charge VAT and excise tax on the website of the UAE Tax Authority.
- The Dubai government also plans to introduce a new corporate tax shortly.
- More than 100 separate double tax agreements signed by the UAE also regulate Dubai's tax laws, providing local and foreign residents and companies with various tax exemptions or reductions on individual incomes.
The Value Added Tax (VAT) in Dubai
One of the most notable improvements to the UAE's taxation system is the implementation of VAT in Dubai in 2018. VAT is implemented in the following manner at the national level:
- VAT is collected by the firms in Dubai but is levied on the final customer.
- One of the lowest in the world is the 5 per cent VAT rate set in Dubai.
- For zero-rated products, such as goods and services exported outside the GCC, foreign transportation, 99 per cent pure gold/silver, the provision of some education and health services, and more, there is also a 0 per cent VAT rate available.
- The VAT registration refers to all businesses incorporated or to be included.
- VAT-registered companies can based on certain conditions, demand refunds from the Dubai tax authorities.
- Dubai visitors and tourists will demand VAT returns on the items they buy during their stay in Dubai.
- The VAT exemption extends to the supply of such financial services, residential properties, property and local passenger transport services.
The Excise Tax in Dubai
- The excise tax is implemented in 2017 in Dubai.
- It is an indirect tax imposed on commodities, such as carbonated and energy drinks, cigarettes and related products, detrimental to human health,
- The excise tax rate is 50% for carbonated beverages and 100% for energy drinks and tobacco.
Corporate Taxes in Dubai
- Corporate tax is levied on the profits earned by a corporation in the tax year.
- Dubai has its corporate tax laws, apart from the UAE tax structure, which imposes such taxes on corporations operating within the Emirate. However, these taxes apply only to gas and petroleum companies and branches of foreign banks operating in Dubai.
- Dubai-based gas and oil firms are expected to pay a 55 per cent tax rate on the company's income.
- Global bank branches operating in Dubai are expected to pay a tax rate of 20 per cent on taxable income.
- There are no withholding taxes imposed on dividends, interest or royalty remittances overseas.
Taxes in Dubai Free Zones
- The Dubai Free Zones provide international companies seeking to do business in a low tax climate with numerous tax incentives.
- Many Free Zone authorities offer corporate income tax exemptions for terms of up to 50 years.
- Repatriation of income from free zones to other countries is free of charge.
- No withholding taxes or capital gains are imposed in any free zone in Dubai.
Other Taxes in Dubai
- The following are other indirect taxes imposed by the Dubai tax authorities:
- Hotels, entertainment facilities and the leasing of industrial spaces (offices and warehouses) in Dubai are subject to a 10 per cent municipal levy.
- The rental of residential property in Dubai is subject to a 5 per cent municipal levy.
- The Dubai Electricity and Water Authority charge some taxes on energy bills. A toll on the road as it exists
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