Sunday 20 October 2019 (UAE)

Dubai and UAE tax

Tax, taxes, taxation in Dubai and the UAE

Taxes in Dubai and the UAE, tax advisors, expat resident tax obligations in their home country, a brief guide to tax - terms such as tax-resident, non-resident, domicile, and what working in a tax-free country really means.

Tax on foreign exchange fund transfers and remittances to other countries from the UAE
Income tax in the UAE

The UAE does not have any federal income tax on wages or salaries. Each emirate can impose income taxes but none do, and it would be very unlikely for that to change in the near future although there has been talk of introducing income tax in the past. Look to Saudi Arabia as a guide, where the idea has been mooted more often or more seriously, but usually dismissed. If it ever does happen there, the UAE could follow suit.

The International Monetary Foundation (IMF) has occasionally suggested income tax would be advisable for the Gulf Co-operation Council (GCC) countries. The beginning of the walk down the slippery road to filling in W-2s and P45s was begun by Bahrain in June 2007 when they announced the introduction of a 1% income tax to fund an unemployment scheme. Many wondered about the anomaly of expatriates paying income tax for a benefit they were not eligible for, however the Bahrain Ministry of Labour said that under certain circumstances (of their choosing), expatriates could receive unemployment benefit. There were protests against the scheme and some Islamic scholars said that such a tax was "haram", or un-Islamic.

Watch this space.

UAE toying with taxes as a new source of income ... maybe
Sales tax in the UAE

Sales tax already exists, or some form of it does, in the UAE. For example:

VAT, GST in the UAE and GCC

Value Added Tax (VAT), as it's known in the UK, or Goods and Services Tax (GST), as it's known in Canada and New Zealand, is more likely to be implemented than income tax.

The impact of VAT may not be that noticeable, as one plan calls for it to replace customs duties which would be phased out as Free Trade agreements are signed between the UAE and other countries. Sales taxes presently in place (for example 10% for hotel bookings) would also be replaced. Cigarettes are likely to attract a 100% tax, alcohol could be on a higher rate along with some luxury items. Also under consideration is a proposal to exempt some essential food products, other consumer staples, education and health services, from VAT to reduce the impact on low-income groups. Tourists should be able to reclaim VAT paid when visiting the UAE, after its introduction.

Corporation Tax

A PricewaterhouseCoopers (PWC) report (Global Effective Tax Rates 14 April 2011) rated the UAE as the country having the second lowest effective corporate tax rate for 2006-2009 for international or foreign companies, out of 59 countries surveyed. Worst in the list with 38.8% effective tax rate was Japan. The UAE had 2.2%, and only Venezuela was better, the only country with a negative rate, of -3.4%.

Royalties

Some companies have an agreement, or requirement, to pay royalties to the government. For example Etisalat, the bigger and older of the UAE telecom companies, pays royalties. And says that since there is now a competitor (Du Telecom), who is not paying royalties, it is time to renegotiate the royalty fee.

Customs Duty

General import duty is 10% on luxury goods, and 4% on everything else. That includes goods shipped out of a UAE free zone to somewhere else in the country (which is why your car gets checked when leaving Jebel Ali Free Zone). The amount of duty imposed can vary, and might be as little as 1%.

Alcohol and cigarettes are in a separate category with higher rates of customs duty. About 30% or 33% for alcohol - if you go to an alcohol shop in Ajman or Umm Al Quawain, you can choose between showing your alcohol license and paying the 30% tax, or not showing it and getting the booze cheaper (and illegally).

Expats paying taxes in their home country or country of origin

This is not tax advice - you should see a qualified tax accountant or tax lawyer for proper tax advice. Tax information can be complicated, this section is a very simplified introduction and is insufficient for proper tax planning.

Generally, people pay taxes in the country they live and/or work in, whether it be income tax, and/or a tax on consumption, eg VAT in the UK, MwSt in Germany, GST in Canada and New Zealand, etc. Tax is also paid on income derived from within a country whether or not you live there eg rental property, investments.

People living in one country and working in another should only pay tax in one country - double taxation agreements are so you don't get stung in both countries.

There are three terms to familiarise yourself with.

There are exceptions to the general explanations given, and different ways of using the terms (domicile of residence, domicile of tax residence, blah blah blah). Watch out that complicated sounding terms used by tax departments and offices have the same meaning as complicated sounding terms used by tax advisors, especially unqualified ones, that might be intended to confuse you into paying for their advice.

Tax residence

Different countries have different criteria for determining if you are tax resident. Those criteria are rarely set in stone, it is the intent rather than the actions that the country's Inland Revenue Department look at to decide if you are resident for tax purposes. For example

What does being "resident for tax purposes" mean?

Being declared tax resident for a country usually means you are supposed to pay tax according to that country's tax laws on any and all income. That includes wages, salaries, benefits (school fees, company car, accommodation provided, etc), income from investments (bank deposits, stocks and shares, rental income), no matter where it is sourced from.

Double taxation agreements mean that if you are taxed in one country, you don't pay tax again on the same income in another country. For example you live in Holland but work in Germany and your employer deducts tax before paying your salary. You are probably "tax resident" in Holland but shouldn't pay tax there on your salary, you might pay tax on your investments held in Holland though. The UAE has double tax agreements with many countries but they have little relevance to most expats working in Dubai.

Expats who move to a tax-free country like the UAE usually have no problems with the tax authorities in their home country if they clearly have taken up residence in the UAE for a medium to long-term period (at least 2 years). If you own a property in your home country, consider selling it or at least renting it out long term - having accommodation available for your use is a red flag to tax authorities. However, in some countries, renting out your home is insufficient to escape the tax man (Canada is possibly an example of this). Other things that can throw up red flags (remember these are not hard and fast criteria, and individually may not be a problem, it's the overall impression that the tax department looks at).

Some countries are clear on which criteria matter, and how they matter. Others, less so.

Find the website of the tax authority or inland revenue department of your home country and study it. Usually there will be a section or department for non-residents and their tax obligations. Telephone them to ask questions. They are not always the enemy and can be very helpful.

Non-resident status for British nationals resident in the UAE

Since 06 April 2009, the information booklet IR20 about tax liability in the UK for residents and non-residents has been replaced by HMRC6 for UK citizens working and living abroad. Those who are wondering about their tax status should carefully read Chapter 8, especially if a tax adviser, or a mate at a BBQ, tells you not to worry as long as you don't return to the UK for more than 90 days per year.

British citizens living in the UAE do not pay tax on their UAE income if they are declared non-resident by the UK tax authorities (HMRC - Her Majesty's Revenue & Customs). This happens when the citizen makes a clear break in their ties to the UK in terms of where they live and work, which is the same principle that applies in most or all other countries in determining your residency status for tax purposes.

Last update Sunday 05-Jan-2014
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