Dubai is a no tax emirate. Accordingly, double tax treaties aim at making Dubai a more attractive territory in which to operate by reducing taxation levied in the foreign jurisdiction on profits remitted abroad by foreign corporations operating in Dubai.
Dubai has an extensive and growing list of double tax treaties, which currently numbers over 60. This network includes treaties with China, Cyprus, France, Germany, India, Indonesia, Italy, Luxembourg, Malaysia, Malta, the Netherlands, Singapore, South Korea and Ukraine.
The “place of incorporation” criterion is part of many of the UAE treaties and simply put, if a company is incorporated or created in the UAE, then it will be a resident for the purposes of that particular treaty eg Armenia, Finland, Mauritius, Mongolia, Luxembourg, Sri Lanka, Austria, Switzerland, Mozambique and New Zealand.
Some countries impose the additional test of place of effective management eg Germany, Korea, Spain, Romania, India and Canada. Factors include:
key office location
place where meetings are held or initiated
domicile of controlling individuals
property and IP held
head office mailing address
location of auditor and accounts
residence of the manager or management
The free zones offer facilities such as offices, managers, call centers, banking relationships etc allowing companies to change their place of effective management, subject to the provisions of the treaties.
UAE DOUBLE TAX TREATY NETWORK
TAXATION IN UAE
Currently, the UAE federation does not impose a federal corporate income tax.
Under the emirate based tax decrees, corporate income taxes may be imposed on all companies – including branches and permanent establishments. However, in practice the corporate income tax is currently imposed only on oil and gas companies and branches of foreign banks having operations in the emirates.
In addition, some of the emirates have introduced their own specific banking tax decrees which impose tax on branches of foreign banks at the rates of 20 percent.
Entities established in a free trade zone in the UAE are treated differently than a normal “onshore” UAE entity. Free trade zones have their own rules and regulations and typically, from a tax perspective, they generally offer guaranteed tax holidays to businesses and their employees set up in the free trade zone for a period between 15 to 50 years, which are mostly renewable.
Personal income tax
There are currently no personal income taxes imposed on individuals working in the UAE.
There is a social security regime in the UAE which applies to employees who are GCC nationals. Generally, for UAE nationals the social security payment is at a rate of 17.5 percent of the employee’s gross remuneration as stated in an employee’s employment contract and applies regardless of the free zone tax holidays. 5 percent is payable by the employee and the remaining 12.5 percent is payable by the employer.
There is currently no VAT in the UAE. However, the UAE along with the other member countries of the GCC has committed, in principle, to introduce a VAT system and UAE has made significant progress towards its introduction which is expected in the near future.