Taxes in the UAE: essential information
The UAE is prominent for its favorable tax system, providing an ideal environment for both personal and business pursuits. While the country has embraced a tax-friendly approach, it is not entirely devoid of taxes, particularly considering its gradual economic diversification. In this article, we delve into the UAE's tax system, offering a comprehensive analysis of the taxes applicable to individuals and legal entities.
Tax residency in the UAE
Obtaining a resident visa in the UAE is akin to acquiring a European residence permit. This visa not only allows individuals to legally reside in the country and travel in and out freely but also grants them a host of rights, effectively bringing them on par with citizens. As a noteworthy advantage, possessing this document permits individuals to conduct business within the UAE while being exempt from personal income tax. Additionally, after residing in the country for 30 years, one can apply for citizenship through naturalization.
«Any holder of a resident visa automatically becomes a tax resident of the country.»
The resident visa can be renewed indefinitely, provided the original conditions are maintained. Consequently, purchasing real estate in the Emirates essentially ensures an indefinite residence in the country, under the most favorable conditions.
Taxes for individuals
Personal income tax
Tax residents in the UAE enjoy a unique advantage: they are not required to pay personal income tax. This is not a mere fairy tale or a marketing gimmick; it's a reality. Every component of personal income, including wages, sales transactions, interest, dividends, royalties, wealth, luxury, inheritance, and donations, remains entirely with the individual.
Furthermore, tax residents are also exempt from paying capital gains tax, meaning that all profits from asset sales, such as securities, real estate, and precious metals, belong solely to the individual. In essence, the UAE allows you to retain full control over your money.
Notably, holders of a resident visa are not subject to pension tax on income from foreign sources. This adds to the attractiveness of the UAE's tax residency for individuals.
When buying. When purchasing residential real estate in the UAE, two taxes must be paid. These are the Transfer Fee and the Registration Fee.
The Transfer Fee varies depending on the emirate. In Dubai, it amounts to 4% of the property's cost, while in neighboring Abu Dhabi, it is only 2%. Generally, the buyer is responsible for paying the full amount, although there may be agreements to split the cost with the seller. An additional administrative fee of 540 dirhams (approximately 13,000 rubles) is also required when paying the tax.
Now, let's discuss the Registration Fee. Its value is determined by the property's price and comes in two options:
- 2000 dirhams for transactions not exceeding 500,000 dirhams;
- 4000 dirhams for transactions exceeding 500,000 dirhams.
For ease of reference, 500,000 dirhams is approximately 12 million rubles. It is important to note that the Registration Fee remains consistent across the entire country.
Following the property transaction, a certificate of ownership, equivalent to an extract from the EGRN, must be obtained. This involves submitting a special application to the local court and paying a state fee of 250 dirhams (approximately 6000 rubles). The document is typically processed within three working days.
If the property is commercial rather than residential, a 5% VAT is added to both the Transfer Fee and the Registration Fee.
When selling. It is possible that you may be required to cover half of the tax on the transfer of ownership. In Dubai, this amounts to 2% of the property's value, and in Abu Dhabi, it is 1%.
When renting. Tenants of residential properties in the UAE are subject to a monthly municipal property rental tax. This tax is conveniently included in the utility bill, allowing for a single payment. In Dubai, the municipal tax rate is 5% of the rental amount, while in Abu Dhabi, it is 3%, and in Sharjah, it stands at 2%.
Tenants occupying commercial premises face a higher rate of 10% for the municipal tax.
In the Emirates, there is a notable advantage: no transport tax is imposed, allowing individuals to purchase new cars without any state deductions. However, if you opt for a used car, a registration fee will be required, with the amount varying between 350 and 550 dirhams based on the emirate. The local Roads and Transport Authority is responsible for collecting this fee.
Additionally, it is essential for every car owner in the UAE to have an insurance policy. Typically, the insurance cost amounts to no more than 3% of the car's value, and in certain cases, it may even decrease to 1.25%. Similar to Russia, the final insurance cost depends on factors like the driver's experience, age, and the car's characteristics.
An important consideration is that upon attaining resident status, Russian driving rights are no longer valid, and national driving rights must be obtained instead. The cost of courses at local driving schools averages around 4000 dirhams.
Consequently, the overall cost of buying the first car encompasses the car's price, car insurance, and the expense of driving courses.
Tourists using restaurants and hotels in the UAE are subject to a special tax, which appears on their bills. The charges typically consist of several tourist fees:
- 10% for hotel accommodation;
- 10% for service fees;
- up to 10% for municipal tax;
- from 6% to 10% for city tax ;
- 6% for the basic tourist fee.
Additionally, in Dubai, a tourist dirham is added to the list, which is a small fee applied to hotel guests, apartment hotels, and guest houses. The amount of this fee depends on the hotel's star rating and the room category:
- 1-star hotels: 7 dirhams per day;
- 2/3-star hotels: 10 dirhams per day;
- 4-star hotels: 15 dirhams per day;
- 5-star hotels: 20 dirhams per day.
The tourist dirham fee is applicable only for the first 30 days of the hotel stay.
Taxes for legal entities
Legal entities in the UAE are subject to income tax based on their annual profits. If a company's annual profit exceeds 375,000 dirhams (approximately 9 million rubles), it incurs a tax rate of 9%. For large multinational organizations earning over 750 million euros, the tax rate is set at 15% in alignment with the global minimum corporate tax rate agreement. At present, all other companies are exempt from income tax obligations.
Notably, enterprises based in free zones also receive an exemption from income tax. However, they are now required to file tax returns on a regular basis.
Branches of foreign banks operating in the UAE are taxed at a rate of 20%, while foreign oil and gas companies face a tax rate of 55%.
VAT (Value Added Tax)
Companies with an annual profit of 375,000 dirhams are subject to a 5% VAT rate. To fulfill this obligation, legal entities must register as a VAT payer on the website of the FTA (Federal Tax Authority), which is the local equivalent of the Federal Tax Service.
For companies with annual profits ranging from 187,500 to 375,000 dirhams, paying VAT is optional.
VAT payments are typically made within 28 days after the end of the tax period, which is usually equivalent to one quarter. However, the FTA may impose individual conditions on companies in certain cases.
The excise tax applies to companies involved in importing, producing, or storing goods considered harmful to health and the environment, as recognized by the Government of the Emirates.
The excise tax rates for specific products are as follows:
- 50% on carbonated drinks (excluding water);
- 50% on products with added sugar or sweeteners;
- 100% on tobacco products, electronic smoking devices, alcohol, and energy drinks.
Companies liable for excise tax must settle their dues within 15 days after the conclusion of the tax period.
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