Optimal taxation strategies for businesses in the UAE

The tax system in the UAE is quite favorable and encourages foreign investors. Therefore, there is no need to apply any special tax strategies for businesses in the UAE - the conditions are already comfortable. Businesses only need to adhere to local regulations.

Taxes in the UAE for legal entities

Understanding the tax policy in the UAE is straightforward, although there are no unified rules (each emirate develops and uses its own rates). Companies established and operating in free economic zones are exempt from most fees. Businesses registered on the mainland are required to make mandatory payments in accordance with local laws. As a general rule, tax rates are determined by the sector of activity. For example, the highest levies are imposed on companies operating in the oil extraction and processing sector, as well as banks.

Types of taxes for legal entities

Foreign entrepreneurs establish companies in the UAE to reduce the economic burden. The best conditions are offered in free economic zones – where special regimes apply. However, legislation on the mainland is also quite favorable.

VAT

The standard rate is 5%. VAT returns must be filed quarterly, and for companies with turnover exceeding 150 million dirhams, monthly filings are required. The deadline for filing returns is 28 days after the end of each period.

Some types of goods and services are subject to zero-rated VAT or are exempt from VAT altogether. For example, organizations with turnover less than 375,000 dirhams annually are not required to pay VAT. Businesses with such turnover can voluntarily register as VAT payers. Registration becomes mandatory after reaching a turnover of 375,000 dirhams or mo

Corporate Income Tax

Until the beginning of the 2023 fiscal year, corporate tax in the UAE was absent, but the situation has now changed. As of June 1, all companies registered in the UAE, managed and controlled from this country, and foreign legal entities with a permanent establishment in the country are required to pay. The following are exempt from this requirement:

• Organizations registered in free zones, as well as those working with foreign counterparts and not conducting activities in the UAE;
• Businesses whose annual income does not exceed 375,000 dirhams.

Additionally, the changes do not apply to banks, insurance companies, and enterprises engaged in the extraction of natural resources - they paid taxes previously.

The rate is 9%. This is one of the lowest rates in the world. Corporate tax must be paid once a year.

Excise Tax

Excise tax is applied to tobacco, electronic cigarettes, vaping liquids, energy drinks, sugar-sweetened beverages, and any food products containing sweeteners. The rate is determined by the type of product. For example, for energy drinks and tobacco products, including electronic cigarettes, it is 100%. The VAT for sugar-sweetened beverages and any food products containing sweeteners is 50%. Mandatory fees are charged either on the established minimum retail price or on the minimum price set by regulatory acts.

Registration of a legal entity as a tax resident

Tax residency allows avoiding double taxation. Profits earned by foreign businessmen in the emirates are not subject to taxation (except in certain cases) and can be withdrawn from bank accounts without restrictions.

To obtain the status, it is necessary to:

• Physically stay in the country for more than 180 days within one year (applies to key company employees);
• Obtain a residency visa (for directors, top managers);
• Confirm the residence of key employees in the UAE;
• Rent a physical office in Dubai or another emirate (depending on the place of registration);
• Actually conduct business activities (this can be confirmed by conducting regular operations on the bank account for the last six months);
• Provide an audit report for the last year.

Additionally, the company must be officially registered for at least one year.

For more information on residency matters, you can consult experts from The Level Consulting. Our specialists will explain the peculiarities of the UAE legal system, help choose the optimal tax strategy for your business, and create conditions for obtaining residency.

Taxes in the UAE for individuals

Individuals - UAE citizens and residents - are exempt from most mandatory payments and fees. For instance, there is no income tax, dividend tax, capital gains tax; moreover, foreigners with a residency visa do not pay pension tax.

Income Tax

Non-residents are required to pay income tax in their own country, not in the UAE. For residents, the personal income tax rate is 0%.

Property Tax

UAE tax residents do not pay taxes on income from salaries, property sales, deposits, stocks, and bond coupons.

Property Purchase Tax

A property buyer is required to pay registration and administrative fees. The amounts are fixed:

• Administrative fee: AED 540.
• Registration fee: AED 2,000 for properties priced up to AED 500,000, and AED 4,000 for properties purchased for more than AED 500,000.

Property Transfer Tax is usually split equally between the seller and the buyer. The rate depends on the location of the property. For example, in Dubai, it is 4% of the property value, while in Abu Dhabi, it is 2%. The price fixed in the sales contract is considered.

Additionally, the buyer pays a fee of AED 250 for the issuance of the property certificate.

Rental Tax

The tenant pays the rental tax along with utility bills (the required amount is automatically included in the bill). For tenants in Dubai, the rate is 5% of the monthly rent, in Abu Dhabi - 3%, and in Sharjah - 2%. For commercial properties, the tenant pays at a rate of 10%.

Property Maintenance Tax

There are no regular taxes for property owners in the UAE, but they must pay for maintaining the common area, repairs, and infrastructure development. The amount of contributions is determined by the developer. Typically, the fee ranges from $15 to $60 per square meter.

Optimal taxation strategies for businesses in the UAE

The optimal strategy for companies planning to conduct business outside the UAE territory (for example, remotely providing services to clients from Russia) and aiming to ease the tax burden is to register in one of the free zones. When choosing a zone, take into account the nature of the activity, its internal rules, and requirements.

Companies operating on the mainland should consider hiring an accountant. Changes to the taxation system occur regularly, with frequent clarifications and explanations regarding concessions for small and medium-sized businesses - without a specialist to monitor developments, it's indispensable. Contact The Level Consulting - we provide comprehensive business support services in the UAE, including legal support, accounting and auditing, and solutions for obtaining tax incentives.