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Taxes in Dubai and the United Arab Emirates

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Taxes in Dubai and the United Arab Emirates

Dubai, being one of the seven emirates that make up the United Arab Emirates (UAE), follows the tax laws and regulations set by the federal government. The UAE has historically been known as a tax-friendly jurisdiction, but in recent years, the government has introduced several taxes to diversify its revenue sources and align with international standards. Here’s a comprehensive overview of the taxes applicable in Dubai and the UAE:

Value Added Tax (VAT)

The UAE introduced a 5% Value Added Tax (VAT) on most goods and services on January 1, 2018. VAT is an indirect tax that is ultimately borne by the end consumer.

Practical Example:

If you purchase a product worth AED 100 in Dubai, you will be charged an additional 5% VAT, which amounts to AED 5. The total cost of the product, including VAT, would be AED 105.

Excise Tax

The UAE levies an excise tax on certain products that are deemed harmful to human health or the environment. The excise tax rates are as follows:

  • 100% on tobacco and tobacco products, electronic smoking devices and tools, liquids used in electronic smoking devices and tools, and energy drinks.
  • 50% on carbonated drinks and sweetened drinks.

Practical Example:

If the retail price of a pack of cigarettes is AED 10, the excise tax would be AED 10 (100% of AED 10). The total cost of the pack, including excise tax, would be AED 20.

Corporate Tax

Starting from June 1, 2023, the UAE will introduce a federal corporate tax at a standard rate of 9% on taxable income exceeding AED 375,000 (approximately $102,000). Companies with taxable income below AED 375,000 will be subject to a 0% corporate tax rate.

Practical Example:

If a company in Dubai has a taxable income of AED 500,000 for the financial year, it will be required to pay a corporate tax of 9% on the amount exceeding AED 375,000. In this case, the corporate tax payable would be AED 11,250 (9% of AED 125,000).

Customs Duty

The UAE generally imposes a customs duty of 5% on the cost, insurance, and freight (CIF) value of imported goods. However, certain products like alcohol and tobacco may be subject to higher customs duty rates.

Practical Example:

If you import goods with a CIF value of AED 100,000 into Dubai, you will be required to pay a customs duty of AED 5,000 (5% of AED 100,000).

Municipal Tax

Most emirates in the UAE, including Dubai, levy a municipal tax on properties based on their annual rental value. In Dubai, the municipal tax rate is 5% for residential properties (paid by tenants) and 5% for commercial properties (paid by property owners).

Practical Example:

If the annual rental value of a residential property in Dubai is AED 100,000, the tenant will be required to pay a municipal tax of AED 5,000 (5% of AED 100,000).

Tourism Dirham Fee

Dubai imposes a Tourism Dirham fee on hotel guests and tenants of hotel apartments. The fee varies depending on the hotel’s rating and location.

Practical Example:

If you stay in a 5-star hotel in Dubai for one night, you may be charged a Tourism Dirham fee of AED 20 per room per night.

Property Transfer Fee

When buying or selling a property in Dubai, a property transfer fee is levied at a rate of 4% of the property’s fair market value. This fee is typically shared between the buyer and the seller.

Practical Example:

If you purchase a property in Dubai with a fair market value of AED 1,000,000, you will be required to pay a property transfer fee of AED 20,000 (2% of AED 1,000,000, assuming the fee is split equally between the buyer and the seller).

Conclusion

It’s important to note that while the UAE is generally considered a tax-friendly jurisdiction, the introduction of these taxes aims to diversify the government’s revenue sources and align with international standards. Businesses and individuals operating in Dubai and the UAE should stay updated on the latest tax regulations and seek professional advice to ensure compliance and minimize their tax liabilities.

If you have any questions on this topic, please feel free to request an appointment with us. Our team will be happy to help you at any time.