The essentials in a nutshell:
- The tax rate is 9%: you must pay 9% tax on gains above AED 375,000 (approximately €95,000) per year.
- Obligation to keep accounts: you must keep accounts in accordance with IFRS. Even if you are not subject to taxation, you must provide proof of proper accounting. This implies an increased administrative burden + penalties for non-compliance.
- Freezone companies are also concerned. Under certain conditions, your Freezone may be excluded. Ask us for advice on this.
- Anti-abuse rules: The intentional separation of business activities for the purpose of obtaining a tax advantage is considered illegal under the general anti-abuse rules of the CTL.
What taxes do I have to pay in Dubai?
Dubai is known for its advantageous tax rates and therefore attracts many international companies. Here you can find an overview of tax rates in Dubai for individuals and companies:
- No income tax The UAE does not have a personal income tax. This applies to both foreign citizens and residents.
- Value Added Tax (VAT): VAT was introduced in the UAE in January 2018. The standard VAT rate is 5% and applies to most goods and services.
- Corporate tax: Although there is no personal income tax, a corporate tax has been levied since June 2023. The standard tax rate is 9% on net profits above AED 375,000. This concerns societies, but not individuals.
- Property tax: Dubai levies a one-time property tax when buying real estate, known as the “registration tax,” which amounts to 4% of the purchase price of the property.
- Tourist Tax: Hotels and other tourist establishments in Dubai levy a tourist tax that must be paid by the customers.
- Tolls (Salik): Dubai has an electronic toll system called Salik. The fee is automatically charged when vehicles pass through certain toll booths.
- Stamp Duty or Other Taxes: Other specific taxes and fees may apply to certain services or transactions.
Dubai’s New Corporate Tax System: Features and Principles
Dubai is known for its business-friendly environment and its “Vision 2021” program, which aims to make the emirate the world’s leading business center. An important component of this plan is the new Corporate Tax (CT) regime, which in the year was introduced in 2022 and will be fully implemented from June 2023. In this blog, we give you an overview of the main features and principles of the system, as well as things to consider if you have an existing business in Dubai.
As of June 1, 2023 The new United Arab Emirates (UAE) corporate tax, called “Corporate Tax”, has come into effect.
If your business is established in the UAE, you must pay the new tax as soon as your profits exceed a certain threshold. All legal forms are concerned.
If you then want to know exactly whether your company is subject to this regime or if you plan to emigrate and start a business, all you have to do is make a request. Setting up a business in Dubai Feel free to contact us to see how we can help you.
Dubai is known for its favorable tax policy. Companies operating in Dubai benefit from low tax rates and a simple tax system. However, the government of Dubai has now introduced a new corporate tax system.
Overview of UAE Corporate Tax 2024:
- The new 9% corporate tax has been in force since 1 June 2023. The first AED 375,000 (approximately $100,000) of profits is exempt. However, the specific rules regarding wages and deductions are not yet fully clarified.
- An average salary of AED 60,000 ($16,000) per month for a general manager in Dubai will likely be tax deductible, provided it is market-compliant.
- For individuals in the UAE, there is a turnover franchise of AED 1 million (about $270,000). Up to this amount, no registration or reporting obligations are required.
- Unqualified Mainland companies and Freezones can benefit from the “Small Business Relief”, which is valid until 2026 and provides for a turnover limit of AED 3 million (approximately $816,000).
- Corporate Tax does not apply to income from capital or dividends.
- For a Freezone to be exempt, three conditions must be met, relating to the nature of the activities, the prohibitions and the need to create full value in the Freezone.
- The introduction of corporate income tax could have both advantages and disadvantages, depending on individual income and business model. Tax legislation could be disadvantageous for some entrepreneurs if they exceed the turnover and profit thresholds set.
Summary: The UAE introduced a new corporate tax of 9% in 2023, with certain exemptions and provisions. This could have both advantages and disadvantages for entrepreneurs and businesses, depending on their specific situation.
Who is considered a taxable person in Dubai?
Under the new CT system, all companies operating in Dubai that are not registered in a free trade zone are required to levy corporate taxes. This also applies to branches and subsidiaries of foreign companies. Companies in Freezones can in principle be exempt from corporate tax if they meet certain conditions.
Dubai’s new corporate tax system is expected to help diversify the country’s economy and create new revenue streams. The Dubai government plans to use corporate tax revenues to develop infrastructure projects and encourage start-ups and small businesses.
Income from salaried activity: what to pay attention to?
The new CT system also incorporates income from salaried work, such as wages and bonuses, into the tax calculation. The employee’s family situation is also taken into account when determining tax rates.
The introduction of the new corporate tax system (9%) and value-added tax (5%) introduced in 2018 is part of Dubai’s broader strategy to diversify its economy and make the country a leading economic hub. Dubai also plans to invest in different areas over the next few years, including technology, renewable energy, and artificial intelligence.
5% Value Added Tax (VAT) in Dubai
In Dubai, VAT has been constant since 2018 and amounts to 5%. This indirect tax is levied on most goods and services, with exceptions for certain foodstuffs, education services, and health services.
0% Income Tax for Employees and Contractors
Dubai does not levy personal income tax on employees or contractors. This is considered one of the biggest financial incentives for people who want to work or do business in the UAE. However, in June 2023, Dubai will introduce a corporate tax that provides for a rate of 9% on net corporate income. Nevertheless, salaries and bonuses will not be affected by this tax.
Special consumption taxes
In addition to VAT, there are special excise taxes in Dubai on certain products such as tobacco, alcoholic beverages, and energy drinks. These taxes aim to reduce the consumption of products that are harmful to health and to generate additional revenue for government projects.
Vehicle Tax in Dubai
In Dubai, there is no direct vehicle tax like in many other countries. On the other hand, there are registration, annual renewal and salik (toll) fees, which are levied at the time of driving on certain highways. These costs are relatively low and contribute to the financing of the emirate’s ultramodern infrastructure.
Indirect taxes
In addition to VAT and the special consumption tax, other indirect taxes may apply in Dubai. These include taxes for services provided by the state and tolls (salik). While they are not directly classified as “taxes,” they have a similar financial impact on residents and businesses.
Exceptions to tax liability in Dubai
There are some exceptions to the tax liability, for example for non-profit organizations and government institutions. There are also cases where the income and profits of foreign companies are not taxed.
How is the tax base calculated in Dubai?
The corporate tax base in Dubai is calculated based on the net profits that a company makes within the emirate. There are specific rules for the valuation of assets and losses.
When a company operates in Dubai but also generates revenue in other countries, the income is usually divided and taxed in each country. The tax in Dubai is then applied to the share of the income realized in Dubai.
What is a permanent establishment in Dubai?
A permanent establishment refers to foreign companies that do business or own real estate in Dubai. If a company owns such an establishment, it must pay taxes and have a business address in Dubai.
However, there are exceptions to this rule. For example, companies operating in a free trade area (Offshore) are exempt from tax liability. Similarly, companies that are only temporarily active in Dubai do not have to pay taxes.
UAE-sourced income taxation
When a company earns income in Dubai, that income is usually taxed in Dubai. However, there are exceptions if the income is generated abroad or if the company operates in a free trade area.
If a company is active in a free trade zone, its income is usually not taxed. However, if the company operates outside the free trade zone, it must have its income taxed in Dubai.
Taxable income in Dubai: a simple summary
Taxable income in Dubai includes all income generated by a person or company in Dubai. These include income from commercial activities, rentals, capital gains, and other sources of income. Taxable income is usually calculated on the basis of the remaining net income after deduction of certain expenses such as business expenses and depreciation.
It is important to note that there is no income tax in Dubai. Instead, there is a corporate tax that only applies to companies. This tax is applied to the taxable income of the company and amounts to 9%.
Loss compensation in the UAE: what to look out for?
Businesses can deduct losses from previous years from their current income. However, there are specific rules for calculating losses and profits, especially for international companies.
It is important to note that losses can only be offset up to a certain amount. If a company makes losses in one year that exceed this amount, these losses can no longer be offset in subsequent years.
Tax groups in Dubai: definition and meaning
Companies can group together in tax groups in order to obtain tax advantages. However, there are certain rules and conditions for the creation of tax groups.
To form a tax group, companies must generally be under common control and operate in the same sector. Setting up a tax group can help reduce the tax burden on companies by offsetting losses and profits within the group.
Business Management in the UAE: Tips and Tricks
Dubai’s tax authorities are highly efficient and use advanced technologies to manage taxes and control businesses. Here are some tips to help you best meet your tax obligations in Dubai.
- Make sure you fill out all relevant tax forms and documents correctly.
- Keep an accurate record of your income and expenses.
- Work with an experienced tax advisor to ensure that you are in compliance with all tax rules.
- Regularly inform yourself about changes in tax rules and adapt your business practices accordingly.
Transfer pricing (TP): what is it and how does it work?
Transfer pricing is used to determine the value of goods and services between associated companies or companies located in different countries. Transfer pricing can influence a company’s tax liability and there are certain rules for calculating and applying them.
It is important to note that transfer pricing should not be manipulated in order to reduce the tax burden. Dubai’s tax authorities are very strict when it comes to compliance with transfer pricing rules and can impose hefty fines on companies that fail to comply with these rules.
Summary of Dubai’s New Corporate Tax
Despite the introduction of the new tax, Dubai remains an attractive location for investment and business due to its low tax rate and good infrastructure. We recommend that you inform yourself about the new tax rules at an early stage and seek legal and tax advice if necessary.