Corporate Tax (CT)
In January 2022, the UAE Ministry of Finance announced the implementation of Corporate Tax all over the United Arab Emirates. As per the Ministry, the Corporate Tax law will be effective from the 1st of June 2023. The Corporate Income Tax will be applicable on or after 1st June 2023, depending on the financial year of the businesses. Corporate Income Tax is a form of direct tax levied upon income. The United Arab Emirates is not the only country that practices corporate tax in the global market. If we look into it, we can find that the US, India, France, and also other GCC countries such as Oman, Kuwait, and Qatar have implemented the Corporate Tax. Compared to these countries, UAE has the least corporate tax rate which is 9%. At the G7 countries meeting held in 2021, gulf countries entered into an agreement where a global minimum corporate tax of 15% was introduced.
The Federal Tax authority will be responsible for the administration, collection, and enforcement of UAE Corporate Tax, whereas the Ministry of Finance will remain as the competent authority for the intention of bilateral or multilateral agreements and the international exchange of information for tax purposes.
Implementation of Corporate Tax has always helped the countries in sustaining their economy. The acknowledgment of the corporate tax in UAE also intends to enhance corporate governance and thus reinforce the economy of the nation. The corporate tax can also be considered as the bullet train for the UAE to reach its strategic economic transformation.
Through the implementation of the Corporate tax, the UAE aims to cement its position in the global market as the leading hub for businesses and investments, to accelerate the development of the country, and also to reaffirm the country’s commitment in meeting the international standards for tax transparency and prevent unauthorized tax practices
Value-added tax (VAT)
VAT was introduced in the United Arab Emirates on 1 January 2018. The general VAT rate is 5% and applies to most goods and services, with some goods and services subject to a 0% rate or an exemption from VAT (subject to specific conditions being met).
The 0% VAT rate applies to goods and services exported outside the VAT-implementing Gulf Cooperation Council (GCC) member states, international transportation, the supply of crude oil/natural gas, the first supply of residential real estate, and some specific areas, such as health care and education.
Further, according to Cabinet Decision (No. 46 of 2020) on 4 June 2020, a person shall be considered as being ‘outside the state’, and thus fall under zero-rating export of services, if they only have a short-term presence in the state of less than a month and the presence is not effectively connected with the supply.
A VAT exemption applies to certain financial services, as well as to the subsequent supply of residential real estate. Further, transactions in bare land and domestic passenger transport are also exempt from VAT.
Certain transactions in goods between companies established in UAE Designated (Free) Zones (DZs) may not be subject to VAT. The supply of services within DZs is, however, subject to VAT in accordance with the general application of the UAE VAT legislation.
For UAE resident businesses, the mandatory VAT registration threshold is AED 375,000 and the voluntary registration threshold is AED 187,500. No registration threshold applies to non-resident businesses making supplies on which the UAE VAT is required to be charged.
VAT grouping is allowed, provided certain conditions are met.
There are specific documentary and record-keeping requirements, such as the requirement to issue tax invoices and submit VAT returns (on a quarterly or monthly basis depending on the allocation by the FTA).
Excess input VAT can, in principle, be claimed back from the FTA, subject to a specific procedure. Alternatively, VAT credits may be carried forward and deducted from future output VAT.
Businesses that do not comply with their VAT obligations can be subject to fines and penalties. There are both fixed and tax-geared penalties.
Customs duties
Generally, a customs duty of 5% is imposed on the cost, insurance, and freight (CIF) value of imports. Other rates may apply to certain goods, such as alcohol and tobacco, and certain exemptions and reliefs may also be available. Further, the United Arab Emirates imposes anti-dumping duties on imports of certain goods, such as car batteries, ceramic and porcelain tiles, and hydraulic cement. The anti-dumping duty rates vary depending on the HS codes of the goods and country of export and/or origin. In some cases, the anti-dumping duty is 67.5% of the CIF value of the goods.
The United Arab Emirates is part of the GCC Customs Union, which was established in 2003 to remove customs and trade barriers among the GCC member states. No customs duties are levied on trade between the GCC member states (subject to certain conditions). Additionally, the United Arab Emirates grants duty-free imports to most national goods originating in member countries of the Greater Arab Free Trade Agreement, Singapore, the European Free Trade Association countries (i.e. Norway, Switzerland, Iceland, and Liechtenstein), Israel, and India.
While the UAE free trade zones (FTZs) are areas within the territory of the United Arab Emirates, these are considered outside the scope of the customs territory. Therefore, goods imported into the UAE FTZs are not subject to customs duty. Customs duty is suspended until the goods are imported into the GCC local market.
Excise taxes
On 1 October 2017, the United Arab Emirates introduced an excise tax on tobacco and tobacco products, carbonated drinks, and energy drinks.
On 1 December 2019, the United Arab Emirates expanded the scope of excise tax to include sweetened drinks, electronic smoking devices and tools, as well as liquids used in electronic smoking devices and tools.
The applicable tax rates are as follows:
- 100% on tobacco and tobacco products, electronic smoking devices and tools, liquids used in electronic smoking devices and tools, and energy drinks.
- 50% on carbonated drinks and sweetened drinks.
Tourist Tax
The UAE requires foreigners to pay taxes when enjoying the luxurious amenities of resorts, restaurants, and hotels. Tax rates may vary in different emirates. Dubai, for instance, imposes a Tourism Dirham fee on hotel guests and tenants of hotel apartments ranging from AED 7 to AED 20 per room per night, depending on the hotel’s star rating. For example, a five-star hotel will charge AED 20 per room per night, while a two-star hotel may charge AED 10 per room per night.
Apart from the tourism Dirham fee, other charges and levies may also be included in the bill, including –
- Hotel Tax – 10%
- Service Fee – 10%
- Municipal Tax – 0 to 10%
- Tourist Fee – 6%
- City Tax – 6 to 10%
Property Transfer Tax
When purchasing a property in the UAE, residents are required to pay a transfer fee that varies by emirate. For instance, in Dubai, you’ll need to cough up 4% of the property value (split evenly between the buyer and seller), whereas, in Abu Dhabi, it’s just 2%. These charges apply to any direct or indirect transfers of real estate located within the UAE, including the transfer of shares in a company that holds real estate in the UAE.
Municipal rental Tax
Residential tenants in the UAE are required to pay the municipal rental tax, which is automatically added to their bill. Depending on the emirate, the percentage of the tax varies, with residents of Dubai paying an annual rental tax of 5% while residents of Abu Dhabi and Sharjah pay 3% and 2%, respectively. Furthermore, in the case of renting a commercial property, the tenants are required to pay a 10% municipal tax. It normally varies between 6% and 10%, depending on the emirate.
Withholding Tax
There is a 0% withholding tax prevailing in UAE as of now, which is the least amount charged among the GCC countries. Hence, it attracts more investors to UAE.
Apart from the above taxes, oil and gas exploration and companies are charged at a progressive rate of 55% at the emirate level.
Stamp taxes
Currently, there are no separate stamp taxes levied in the United Arab Emirates.
Payroll taxes
Since there is currently no personal income tax in the United Arab Emirates, there is no payroll tax withholding obligation for employers.
Social security contributions
There is a social security regime in the United Arab Emirates that applies to qualifying UAE and other GCC national employees only. Non-GCC nationals are not subject to social security in the United Arab Emirates.
For UAE national employees (with the exception of those employed in Abu Dhabi), social security contributions are calculated at a rate of 20% of the employee’s gross remuneration as stated in the local employment contract. Social security obligations also apply to employees of companies and branches registered in an FTZ. Out of the 20%, 5% is payable by the employee, 12.5% is payable by the employer, and an additional 2.5% contribution is made by the government. A higher rate of 26% is applied in the Emirate of Abu Dhabi, where the contribution of the employer is increased to 15%, the government’s contribution is increased to 6%, and the employee’s contribution remains 5%. The contributions are subject to a statutory minimum and maximum salary amount (against which the amount of the pension contributions is calculated) of AED 1,000 and AED 50,000, respectively.
For other GCC nationals working in the United Arab Emirates, social security contributions are determined in accordance with the social security regulations of their home country.
The employer is responsible for withholding and remitting employee social security contributions together with the employer’s share.
In the Dubai International Financial Centre (DIFC), the DIFC Employee Workplace Savings Scheme (DEWS) has been introduced, replacing the End of Service Gratuity Benefit (EOSG), with the aim of protecting long-term employee savings. The new scheme was rolled out on 1 February 2020, and employers now are required to make monthly contributions to DEWS or an alternative regulated Qualifying Scheme, as opposed to paying a lump sum ‘gratuity payment’ to an employee at the end of their employment. Employers are required to contribute monthly contributions of 5.83% or 8.33% of the employee’s basic salary (the actual percentage is contingent upon the employee’s length of service) into the scheme.
How can Digits help you?
As the UAE aims to fuel its economic growth and development, new taxes are on the horizon. Thus, it is essential for entrepreneurs planning to incorporate or expand their business in the UAE to keep up with the latest tax regulations and avoid any unwanted fines or penalties. By staying informed, businesses and individuals can make well-informed decisions and take advantage of the diverse opportunities that the UAE has to offer. What you need is a support from an expert team like us who will take care of all of your compliance requirements on time. Digits can enhance your tax knowledge and assist you in framing proper tax policies to stay on the same page with the authorities and get possible tax benefits. Contact our expert tax consultants now and get tax advice to stay compliant.
