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A Brief Guide to the Tax System in the UAE

22/11/2021

The UAE is a free economy, which means that residents can live virtually tax-free. It has a remarkably people-friendly taxation policy. Therefore, the UAE is a very desirable location in terms of economic freedom, tax rate-to-payment ratio, ease of doing business in the UAE, and other factors. In addition, the UAE was named as one of the best places in the world to work and do business.

TAX System in the United Arab Emirates

The following are some of the most important aspects of the UAE's tax structure to be aware of.

People Are Not Taxed Directly

The inhabitants of the UAE are no longer subject to any sort of direct taxes. The government receives all of its revenue in the form of taxes through indirect taxation. Taxes like income tax, corporate tax, value-added tax, and capital gains taxes for people have been abolished by the UAE government. However, keep in mind that these levies are not entirely missing; certain corporate taxes are imposed in some Emirates.

Value-Added Tax (VAT)

There was no VAT until January 2018. Due to concerns about fluctuating economic conditions and falling crude oil prices, the UAE government decided to impose a value-added tax. This should be paid by end-users of all goods and services, except for food, healthcare, & education. The UAE has a tax system at a low rate of 5% on all products and services. The current tax rates are fixed at 5% for the federal government, 2% for the Emirate of Abu Dhabi, and 3% for the Emirate of Dubai. This was done to help the UAE's economy, which is heavily reliant on oil exports for the majority of its revenue, remain stable.

Indirect Tax

All businesses and financial organizations that function in the banking, oil, and natural gas sectors in Dubai, are subject to corporate taxation. The tax rate is directly proportional to the company's value or the quantity of its working capital. At present, taxes are predominantly found in three industries: banking, oil and natural gas, and tourism. Other industries might be free from this type of tax.

Real Estate Taxation

When it comes to property sales, acquisitions, rentals, and leases, the UAE uses a fixed percentage scheme. Residential leases are taxed at a fixed rate of 5%, whereas commercial leases are taxed at 10%. A one-time cadastral charge of 4% of the property's purchase price must be paid when purchasing immovable property in the UAE. The buyer and seller are both obliged to pay 2% of the purchase price. Furthermore, the UAE has signed various treaties with a variety of countries to prevent double taxation on a variety of goods and materials, including finished and unfinished. Presently, the UAE has agreements in place with more than 60 nations, all of which include specific declarations about the avoidance of double taxation. This aids business people and businesses in maintaining accurate pricing.

Free Trade Zones

In the UAE, there are over 40 free-trade zones with their own tax, customs, and import/export regimes. Companies in these special regions are free from paying corporation tax for up to 50 years and are exempt from all import and export taxes.

In a nutshell,

People from all over the world are welcome to visit and work in the United Arab Emirates. The UAE's taxation structure was created primarily to offer a beneficial environment for investors and multinational corporations. Furthermore, rather than imposing a tax burden on its citizens, the government prefers to generate revenue from other means. They've abolished all the trade obstacles that made it difficult for anyone to start a business here. So, every individual or business in the UAE has a great deal of financial independence. For everyone who wants to reside in the UAE, it is a tax haven.

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