The United Arab Emirates Federation was established in 1971 and it has grown into one of the most important economies in the Middle East throughout the last years. The Federation is comprised of seven emirates and each one of them has enforced its own tax law, but only Abu Dhabi and Dubai are currently applying income taxes only in few sectors.
The main regulatory framework establishing the tax regime is the Dubai Income Tax decree, issued in 1969, that states only companies in the oil, gas, petrochemical and banking system are subject to the corporate tax. Oil, gas and petrochemical companies are subject to 50% flat tax rate in Dubai, while branches of foreign banks are subject to a flat rate of 20%. For those wanting to open a company in Dubai it is also important to know that companies will benefit from free trade zones with up to 50 years tax exemptions and no customs duties.
Even if there are no personal income taxes, any withholding taxes on dividends, capital gains or value added tax, there are few other taxes that apply to corporations. For example, Dubai companies must pay a real estate property tax to the municipalities.
Depending on the company’s status, the tax rates vary between 5% and 15%. Managers of companies in the commercial and industrial field will be subject to a 5% tax rate of their annual rent, while managers of branches of foreign banks will be subject to a 15% tax rate. Employers must also contribute to the pension fund of national employees by paying a 12.5% tax and national employees will be subject to a tax rate of 5% for the same pension funds. Services taxes apply in hotels and restaurants also at rates that vary between 10-15% for hotel accommodation and 5-10% in restaurants.
Even if prescribed in the 1969 UAE Tax Law, the income tax was never levied in any of the Emirates. Individuals living in Dubai are not required to pay any tax on their income. Also, the Government does not impose any tax on income derived from rentals, capital gains, transfer of properties or inheritances. Individuals are only required to pay a tax on alcohol, provided that they have obtained a liquor license previously, a 5% municipality tax when renting a property and a 10% tax on hotel and restaurant services.
Dubai has concluded double taxation treaties with a significant number of countries in order to make the investment environment more attractive to those who want to set up a company in Dubai.
The treaties have been enabled to reduce tax burdens for companies redistributing their profits in other countries with more aggressive taxation systems. Some of the countries Dubai has signed tax treaties with are neighboring countries in the Middle East, Germany, Italy, Malta, the Netherlands, France, Greece, Switzerland and Spain - to name a few in Europe - Canada, Australia, China, Japan, India and South Korea.