If you are thinking about moving to live and work in the UAE you have probably learned by now that there is no income tax in Dubai. This is correct, no tax is seemingly levied against your income if you go and work in Dubai or if you have an investment property in the city and rent it out for profit.
However, that sounds too good to be true. Which is why, we lay out the facts about tax in Dubai to set the record straight.
Is it really tax-free in the UAE? Yes, it is - but not in all circumstances! Otherwise there are times when you will have to face tax, and there are tips that you need to know about taxation in Dubai if you are thinking of going to live and work in the emirate.
Dubai was a shining star in the Middle East. It was a place where everyone wanted to be, where the local economy was massively affluent and the way of life subsequently lavish and amazing. And then the reality of economics began to bite and the world caught fiscal flu and all of a sudden people began to see Dubai in a new light. For a while, Dubai was no longer a place where the streets were paved with gold, where there were massive job opportunities and where unlimited numbers of Western expatriates were welcome.
Some who had been profiting from the unreality of the emirate have certainly fallen foul of the fact that Dubai is struggling through economic difficulties. Among those most affected were people profiting from the inflated property market.
However, Dubai has not died as many people suggested it would, it has simply re-adjusted to the major shock its economy has suffered. There are still jobs in Dubai, there is still a great way of life to be enjoyed and, yes, there are substantial tax advantages available to many people who go and live and work in the emirate.
That said, Dubai should no longer be approached with a careless attitude by those out to make a fast buck, who want to work hard and play harder. As recent news stories have highlighted, authorities in the emirate are cracking down on the hedonistic behaviour of non- domiciled individuals, and expatriates thinking of moving to the UAE are cautioned that they need to learn about the customs, traditions and laws before they relocate. For example, women should not flaunt themselves in public, men and women should not make public spectacles with even the most ‘innocent’ of sexual behaviour. Learn the laws, follow the rules, respect the country and its laws and be prepared to adjust and adapt to what is a different way of living at times.
The UAE levies no personal taxation on income: what is more, in reporting on a broadcast last year, Sheikh Mohammed bin Rashid Al Maktoum, the Vice President and Prime Minister of the UAE and the Ruler of Dubai as having stated that: “his country would never adopt an income tax as a way to tackle the deficit. ‘My reply is: No income taxes.’ ” This means that it is unlikely that tax will ever be levied on an individual’s income in Dubai. However, if you earn your income in Dubai but are tax resident elsewhere, you may be subject to taxation on your income – this is because where you pay tax and what you pay it on also depends on where you are resident for taxation purposes.
For example, if you live in the UK and have an investment property in Dubai from which you earn a rental income, you will have to declare this income on your UK tax return and potentially pay tax on it if your overall earnings are above the nil rate band for income tax. Alternatively, if you take a 6 month contract in Dubai and live and work in the emirate for just 6 months, you are likely to remain ordinary resident in the UK for tax purposes and your income could again be subject to British taxation.
If on the other hand you move permanently to live and work in the UAE, or you are out of Dubai for a full tax year or you become non-resident for tax purposes in your home country, then you should be fine.
Then you may be able to earn your salary in Dubai
100% free of income taxation. But every person’s position is unique, and you have to be clear about your tax status and obligation for taxation at home or abroad.
In terms of other taxes in Dubai, they do exist contrary to popular belief. For a start the profits of international banks and energy firms operating in the UAE are taxed at the federal level. Further, you are taxed on any visit to a hotel in Dubai for a stay or even a meal out. Tax adds 10% to your bill. Alcohol is heavily taxed upon importation, it is 50% to bring it in to the country and then another 30% if you have a liquor license and buy alcohol for home consumption. There is also a form of council tax when you pay your utility bills – and many people protest against this tax as it is supposedly for street lighting, waste collection etc and yet most residents pay for this through maintenance fees. And there is a 10% municipality tax as well as 5% municipality tax on rental income.
VAT may be coming in the future to Dubai thanks to the IMF having suggested it might be a good way for the UAE to diversify its economic resources. This is a very unpopular addition for individuals and businesses alike, and many have warned it will have a negative impact on foreign investment. That aside, it is happening, with a deadline for its implementation at GCC level set for 2022.
In conclusion, you can potentially earn your salary
100% free of tax in Dubai if you are tax resident in the emirate and have no other obligation to any other state for the payment of tax on foreign earned and sourced income. However, there are taxes that you will encounter if you live in Dubai, and if you want to make sure you fully understand your personal tax obligations it is recommended you speak to a professional in the country.
Individuals, other than UAE and GCC citizens, must have a residence visa if they want to live in the UAE. Obtaining a residence permit is the primary condition for being considered as resident in the UAE. As a general rule, one has to have a sponsor in order to apply for a residence permit in the jurisdiction.
For many expatriates, the company that employs them will act as their sponsor and secure them residence visa. For those who do not come on an employment contract, there are two other ways for obtaining UAE residency:
• investment in real estate (property residence visa)
• set up of corporate structure to act as sponsor
Real estate investor/property residence visa
UAE government in June 2011 introduced a new system extending the validity of the visa granted to real estate investors for up to 3 years.
The following rules and conditions govern the issuance of a real estate investor visa:
• the property is built and ready for accommodation
• the applicant proves ownership (title deed issued by the Land Registrar)
• the property is worth minimum AED 1 million (equivalent to US$300.000) with no mortgage
• the applicant’s income is higher than AED 10.000 (US$3.000) monthly
The other way to obtain residency is through a corporate structure.
As a general rule, one has to have a sponsor in order to apply for a residence permit in the jurisdiction. For foreigners, setting up a company is a practical way of obtaining sponsorship.
As far as the company is concerned, it must have physical presence in the UAE. In that regard, the most interesting and cost effective options are proposed by free zones situated in the northern emirates. Usually, these options consist of “flexi desks” or “flexi offices”.