Taxation System

Dubai Taxation System

Dubai is a tax-free territorial for individuals, with no income tax, capital gains tax, or inheritance tax. This makes Dubai a very attractive destination for high-income individuals and businesses. However, there are some taxes that businesses and individuals may need to pay, including value added tax (VAT), corporate tax, excise tax, customs duties, and land registration fees.

In this article, we will provide a brief overview of the taxation system in Dubai. We will focus our discussion on the distinct taxes, specifically VAT and Corporate tax, which are applicable within Dubai, along with the corresponding tax rates. We will also provide some tips for staying compliant with the taxation system in Dubai.

Taxation System in Dubai

The taxation system in Dubai is a relatively simple and straightforward one. Individuals are not subject to income tax, capital gains tax, or inheritance tax. However, businesses and individuals may need to pay value added tax (VAT), excise tax, customs duties, and land registration fees.

The Federal Tax Authority (FTA) is responsible for collecting taxes in The United Arab Emirates (UAE). Individuals and businesses can register for taxes online or at a FTA office

General Information of Dubai VAT Registration

VAT is a consumption tax that is applied to most goods and services sold in Dubai. The standard VAT rate is 5%, but there are some reduced rates for certain goods and services.

Businesses that are registered for VAT must collect VAT on their sales and remit it to the FTA. Businesses that are not registered for VAT do not need to collect VAT on their sales.

The types of businesses referred to above in Dubai VAT registration are:

Businesses that have a turnover of more than AED 375,000 in the last 12 months.
Businesses that import goods or services into Dubai.
Businesses that make taxable supplies of goods or services to other businesses in Dubai.
Businesses that make taxable supplies of goods or services to consumers in Dubai.

Businesses that fall into any of these categories must register for VAT, even if they are not currently making any taxable supplies.

Here are some examples of businesses that are required to register for VAT in Dubai:

Retail stores
Restaurants
Hotels
Car dealerships
Construction companies
Professional services firms

Businesses that are not required to register for VAT in Dubai include:

Businesses with a turnover of less than AED 375,000 in the last 12 months.

Businesses that only make exempt supplies of goods or services.
Businesses that only make zero-rated supplies of goods or services.

Businesses that are unsure whether they are required to register for VAT should contact the FTA for clarification.

Dubai Corporate Tax Registration (New Regulation of Corporate Tax w.e.f 1 June 2023)

As of June 1, 2023, the UAE has implemented a corporate tax of 9%. This tax applies to all businesses that are incorporated in the UAE, regardless of their location. However, there are some exemptions to this tax, such as income due to free zone Qualifying Activities.

Qualifying Activities include Manufacturing and Processing of goods or materials, Holding of shares and other securities, Headquarter services to Related parties, Treasury and financing services to Related Parties, Logistics services, etc.

Businesses that are subject to corporate tax must register for tax with the FTA. They must also file an annual tax return and pay their taxes on time.

Corporate Tax Residency in Dubai

UAE introduced a tax residency agreement on 1 March 2023. The tax applies to all UAE-incorporated companies, as well as foreign companies that have a permanent establishment (PE) in the UAE.

The definition of corporate tax residency in the UAE is based on a combination of factors, including the place of incorporation, the place of management, and the presence of a PE.

Place of incorporation: A company that is incorporated in the UAE is automatically considered a tax resident of the UAE, regardless of where it is managed or where its PEs are located.

Place of management: A company that is not incorporated in the UAE may also be considered a tax resident of the UAE if its place of management is in the UAE. The place of management is generally considered to be the location where the key management and control decisions of the company are made.

Permanent establishment: A company that has a PE in the UAE is also considered a tax resident of the UAE. A PE is a fixed place of business through which a company carries on its business in the UAE.

The determination of corporate tax residency in the UAE is complex and can be affected by a number of factors. It is important to seek professional advice to ensure that your company is correctly classified for tax purposes.

Here are some of the key factors that can affect the determination of corporate tax residency in Dubai:

The place of incorporation of the company
The place of management of the company
The presence of a permanent establishment in the UAE
The nationality of the shareholders of the company
The tax treaties that apply to the company

If you are considering setting up a business in Dubai, it is important to understand the implications of corporate tax residency. By understanding the factors that affect tax residency, you can ensure that your company is correctly classified for tax purposes and that you are paying the correct amount of tax.

Trends in Taxation in Dubai

The taxation system in Dubai is constantly evolving. In recent years, there have been a number of significant changes to the tax laws, including the introduction of corporate tax, the changes to VAT, and the potential for future tax reforms.

Introduction of corporate tax: The UAE introduced a corporate tax of 9% in June 2023. This tax applies to all businesses that are incorporated in the UAE, regardless of their location.
Changes to VAT: The UAE introduced VAT at a rate of 5% in 2018. VAT is a consumption tax that is applied to most goods and services sold in Dubai. Since the introduction of VAT, there have been a number of changes to the VAT laws. These changes have included the introduction of reduced VAT rates for certain goods and services, the introduction of exemptions from VAT, and the changes to the way that VAT is calculated.

Overall, the taxation system in Dubai is constantly evolving. There have been a number of significant changes to the tax laws in recent years, and there is a potential for further changes in the future. Businesses and individuals need to be aware of the latest tax developments in order to stay compliant with the law.

Impact of Taxation on Businesses and Individuals in Dubai

The taxation system in Dubai has a significant impact on businesses and individuals. For businesses, the cost of compliance with the tax laws can be a significant expense. In addition, the tax laws can affect the competitive landscape, as businesses that are more tax-efficient may have a competitive advantage.

For individuals, the taxation system can affect the investment climate. For example, the taxation of capital gains can affect the attractiveness of Dubai as an investment destination.

Here are some specific examples of how taxation can impact businesses and individuals in Dubai:

The cost of compliance: The cost of compliance with the tax laws can be a significant expense for businesses. This is because businesses need to keep accurate records of their income and expenses, and they need to file tax returns on time. The cost of compliance can be even higher for businesses that operate in multiple jurisdictions.
The competitive landscape: The tax laws can affect the competitive landscape by giving some businesses an advantage over others. For example, businesses that are more tax-efficient may be able to offer lower prices to their customers. This can make it difficult for less tax-efficient businesses to compete.

How Can We Help

We can help you with all of your tax needs in Dubai. We can help you register for VAT, register for corporate tax, and file your tax returns. We can also help you with tax planning and tax compliance.

Please contact us if you have any questions about taxation in Dubai. We would be happy to assist you.