One of the biggest reasons for people moving to Dubai is the fact that citizens don’t need to pay taxes?
But is Dubai really a tax-free city? Read on to find out.
Dubai Has Zero Income Tax
Dubai doesn’t impose taxes on personal income mainly to entice more people to work in the city.
Dubai is also not dependent on taxes since its economy is fueled by trade, foreign investment, tourism and of course, oil.
When asked if income tax will be levied to help the city’s economy, Sheikh Mohammed bin Rashid Al Maktoum said that the government will never impose income taxes anytime soon. In fact, Dubai is the richest city in the Middle East and MENA region, according to NW Wealth.
When is your income is taxed in Dubai?
One thing that you need to remember is that the zero income tax policy in Dubai is only applicable for its tax residents.
Even if you work in Dubai but you’re a tax resident in another country, your income will still be subjected to tax.
You will be considered a tax resident of the UAE if:
- You are physically present in the country for 90 days or more for 12 consecutive months and you hold a valid residence permit or you’re a resident of any GCC member State
- The UAE is your primary place of residence and the center of your personal and financial interests
- You are physically present in the country for 183 days or more within a 12-month consecutive period
As an expat, it’s very important to know these qualifications, so you know if you need to pay your income taxes in your tax country or if you can enjoy the zero income tax policy in Dubai.
The city also doesn’t impose taxes on wealth, payroll, inheritance, real property and capital gains.
Dubai Has No Corporate Income Tax
Dubai also doesn’t impose taxes on corporate firms except for a few institutions that are required to pay taxes due to the nature of their business.
However, a new amendment on the Taxation of Corporations and Businesses states that businesses will be charged corporate tax from the beginning of their financial year on 1 June 2023.
Applicable to mainland companies, this new mandate signed on 16 January 2023 orders a 9% standard corporate tax rate for income exceeding $102,118.61.
On the other hand, companies with a taxable income exceeding that threshold will not be charged any corporate income tax.
As a business, it’s also very important to apply for a Taxation Residence Certificate one year after your company registration to avoid double taxation.
However, businesses in Dubai that are part of the economic free zone are exempted from paying corporate taxes for 15 to 50 years after their company is registered.
They will also be exempted from paying any VAT and custom fees as part of their privilege from being part of the economic free zone:
|Economic Free Zones in Dubai
|Dubai Airport Free Zone
|Dubai Auto Zone
|Dubai Cars and Automotive Zone
|Dubai Design District
|Dubai Flower Center
|Dubai Gold and Diamond Park
|Dubai Healthcare City
|Dubai Industrial City
|Dubai International Academic City
|Dubai International Financial Center
|Dubai Internet City
|Dubai Knowledge Park
|Dubai Logistics City
|Dubai Maritime City Authority
|Dubai Media City
|Dubai Multi Commodities Center
|Dubai Outsource Zone
|Dubai Science Park
|Dubai Silicon Oasis
|Dubai Studio City
|Dubai Techno Park
|Dubai Textile City
|Energy and Environment Park
|International Humanitarian City
|Jebel Ali Free Zone Authority
|Jumeirah Lake Towers Free Zone
|Dubai Production City
Types of Taxes in Dubai
While Dubai doesn’t impose taxes on personal and corporate income, it isn’t completely tax-free.
Here are the different types of taxes in Dubai:
Value Added Tax
On 1 January 2018, the UAE government introduced Value Added Tax (VAT) in all its emirates including Dubai.
The standard 5% VAT rate is applicable to most products and services in the country with the exemption of those goods exported outside the Gulf Cooperation Council (GCC) member states.
Excise tax is applied for products that are considered harmful to human health including carbonated drinks, tobacco and its products and energy drinks.
This rule was implemented on 1 October 2017 and an amendment in 2019 added electronic smoking devices and their liquids as well as sweetened drinks to be charged for excise tax.
Excise Tax Rates in Dubai
- 100% on electronic smoking devices, liquids and tools, energy drinks and tobacco and its byproducts
- 50% on sweetened and carbonated drinks
Over the years, Dubai and the rest of the UAE aimed to be more independent from oil as its main source of income.
Shifting towards trade and tourism, the tourist tax was introduced covering guests staying in hotels and resorts, and dining in restaurants.
Tourist Tax Rates in Dubai
- 10% for room rates
- 10% municipality fee
- 10% service charge
- 6% tourism fee
- 6% city tax
Rental and Property Tax
If you’re renting a property in Dubai, you’re required to pay 5% of the annual rent as your rental tax.
Commercial tenants, on the other hand, are required to pay 10% rental tax.
Municipality tax, which is 5% of your total rental contract, will also be charged and these fees will be divided into monthly installments to make your payments easier.
On the other hand, you’ll be charged a 4% transfer tax when you purchase a property in Dubai. While this should be split between the buyer and seller, it’s usually the buyer who shoulders this fee.