Corporate Tax in UAE

Corporate Tax in UAE

On 31st January 2022, the UAE’s government announced it would be introducing a new corporate tax. Historically, The United Arab Emirates has not imposed taxes on the profits of corporations except those in a handful of industries such as resource extraction and foreign banks. However, from the financial year beginning on 1st June 2023, many more companies operating in the territory will need to begin paying the new 9% corporate tax rate.

The new UAE corporate tax will not affect every business, and many will not need to pay the tax at all. Let’s learn more about the new UAE corporate tax and what it means for you.

In this quick guide, you will learn about:

  • The UAE’s corporate tax history
  • The UAE’s 2023 corporate tax – what is it?
  • Features of Corporate Tax – What Is It?
  • Will free zone companies be taxed?
  • Will personal income be taxed in Dubai?
  • Will there be capital gains tax on dividends in Dubai?

Here is everything you need to know about the United Arab Emirates’ newly announced corporate tax.

The UAE’s corporate tax history

For many years, the United Arab Emirates operated as a very low tax jurisdiction. Citizens do not pay tax on their income and most companies have never had to pay any form of corporate tax. Most of the state’s revenues came from nationalised and private fossil fuel extraction industries that paid around a 50% tax on revenues. Meanwhile, foreign banks have long paid a 20% corporate tax on operating profits, and hotels and restaurants in Dubai paid certain taxes, too.

However, in recent years the United Arab Emirates has begun trying to diversify its economy away from fossil fuels. This means that there are a growing number of businesses that currently do not pay any tax at all. With less potential revenue from fossil fuels and a fast-growing economy, it makes sense for the government to tax revenues on businesses to enable further investment in infrastructure, education and healthcare.

The United Arab Emirates first introduced a VAT tax in 2018, which imposed a 5% levy on all consumer purchases. Then in January 2022, the government announced a corporate tax of 9% that would come into effect the following year.

Another reason is that the United Arab Emirates has introduced its new corporate tax is to bring the country in line with international norms and to help tackle tax avoidance. Most other advanced economies around the world impose taxes on business profits, and the 9% tax on UAE companies is still significantly lower than the norm in most other developed countries (which is usually around 20%). The new UAE corporate tax will also help disincentivise foreign businesses from trying to use the country as a base to avoid tax in their home countries.

Read more about taxes in Dubai

The UAE’s 2023 corporate tax – what is it?

The UAE’s 2023 corporate tax will be a 9% tax on the profits (revenue minus expenses) of all businesses which generate over 375,000 AED (about USD $100,000). Businesses that generate less than this sum of money will continue to pay a 0% tax rate.

In addition to the corporate tax, the UAE has also announced that large multinational firms with profits of more than EUR 750 million will have to pay a 15% tax – this is in line with the Global Minimum Corporate Tax Rate agreement.

The new UAE corporate tax will come into effect in the tax year beginning June 1st 2023, and so most companies will have to start setting aside money to pay their taxes from that date. Businesses whose tax year begins in January will not have to start paying tax on revenues generated before 1st January 2024.

Features of Corporate Tax Regime

The corporate tax regime in Dubai includes a diverse amount of policies, from tax-free free zones to corporate taxes, VAT systems and the absence of federal income tax. Read on to find out notable features of the tax system.

  • Who can be taxed?

Legal entities with notable legal personalities like LLCs, PSCs, PJSCs, LLPs and others will be levied with tax. On top of that, any foreign legal entity that earns income in the UAE and is a tax resident will be charged. Although free zones will incur 0% corporate taxes in return that they comply with all regulatory requirements, this is also applicable to free zone companies that engage in trade activity with the mainland. Non-residents and residents of the UAE may also be subjected to corporate taxing policies.

  • Tax rates

If a business earns income that doesn’t exceed AED 375,000, 0% tax will be charged, and 9% will be charged if income earned exceeds AED 375,000. Also, a different tax rate will be charged for larger multinational companies that have different business conditions.

  • Who is exempted?

Upon receiving dividends or selling shares of a subsidiary company, corporate tax law will include a participation exemption from corporate tax. Also, charities, public benefit organisations, investment funds, businesses engaged in the extraction of oil and resources along with wholly government-owned companies are excluded from corporation taxes.

  • Calculating taxable income

Generally, the account net profit or loss shown in the company’s financial statements will be used to determine the tax percentage and income. In case of a company loss, the business could offset the value against taxable income in future financial years up to 75%.

  • Groups

A group of companies may be able to form a tax group in which they would be capable of being treated as a sole taxable entity. To do so, a company or subsidiary needs to refrain from being an exempted party or being registered in a free zone.

  • Tax credits

In efforts to avoid double taxation, the regime will allow for a credit in parallel with foreign tax paid in a foreign jurisdiction against foreign tax income which has not been exempted.

Will free zone companies be taxed?

It is not yet entirely clear how the new UAE corporate tax will apply to businesses that are based in free zones. According to the government announcement, free zone companies will still be able to benefit from the advantages provided by their own specific free zone’s pre-agreed incentives. However, in future, free zones may decide to change the rules and could potentially introduce the tax.

If free zone companies do business with mainland businesses, they will normally have to pay the corporate tax on revenues generated by working with them.

Free zone companies will also need to register and file a corporate tax return, even though they won’t have to actually pay any tax.

Will personal income be taxed in Dubai?

No, there are currently no plans to tax people’s personal income in Dubai or the rest of the UAE. The only form of personal income tax in Dubai is the 5% VAT tax which everyone must pay on consumer goods and services.

Will there be capital gains tax on dividends in Dubai?

No, there are currently no plans to introduce a capital gains tax on dividends received in the United Arab Emirates or Dubai. At the time of writing (March 2022) business owners and investors do not pay any capital gains tax on dividends from the businesses they’ve invested in.

Why start your company with us?

MP Group is located in DIFC, in the financial hearth of Dubai.

Companies based in Dubai, with our careful supervision and control can continue to benefit from the pre-existing incentives we have negotiated with the government, including a 0% tax rate on profits. So, even when the new UAE corporate tax rate comes in from June 2023, you will not be required to pay it (unless you do business with mainland companies).

Our experienced consultants can support you with all aspects of business setup in Dubai, which means you can focus on launching your business – and leave the admin to us. We can even advise you on things like filling in your corporate tax return (also free zone companies still need to file and register one after June 2023, even though they don’t have to pay the tax itself).

FAQ 1: Is UAE tax-free for business?

Business set up in the UAE mainland will be subjected to a certain amount of taxes, although free zones in Dubai, such as Meydan Free Zone allow 0% corporate and personal tax to be levied upon business profits.

FAQ 2: Who pays corporate tax in the UAE?

All businesses operating in commercial activities and other businesses are subjected to paying corporate tax with a few business models having exemptions. Ex- Businesses involved in the extraction of oil.

FAQ 3: Why is corporate tax introduced in the UAE?

A detailed and extensive corporate regime in the UAE was introduced in order to amplify Dubai’s global position as a hub for investment and innovative startups, with affordable registration costs, inclusive of no corporate taxes.

FAQ 4: How much is corporate tax in the UAE?

Dubai follows a progressive corporate tax system with rates between 9% to 55%.

Do I really need to care about bookkeeping in the UAE?

Do I really need to care about bookkeeping in the UAE?

Bookkeeping is part and parcel of every running business. It helps the companies to track their expenses to ensure effective financial management. Not only this, step-by-step deployment of the accounting cycle enables the companies to provide better insights to the stakeholders, potential investors, and quantitative information of monetary assets to the state institutions for audits. For this purpose, the business people in Dubai and across the UAE have to ensure compliance with universal accounting standards for higher transparency and accuracy of financial records.

Many Business Owners decide to setup a company, ignoring that Accounting & Bookkeeping now is mandatory in UAE. Many companies in the UAE to date, despite having exceeded the minimum thresholds, have not yet registered for VAT (read our article dedicated to How businesses can register for VAT in the UAE ).

Ah, the excitement of setting up a business in Dubai! We know you’re charged up to make your mark in the UAE’s thriving business landscape. But let’s not forget about one of the most critical aspects of running a successful business: bookkeeping. You might be thinking, “Do I really need to care about bookkeeping in the UAE?”

The answer, especially in 2023 with Corporate Tax arriving, is a resounding yes!

Nevertheless, almost all the authorities in the UAE ask for financial statements every time you go to renew your license, in particular the Federal Tax Authority. For this purpose, companies have to consider account audits to generate performance reports of your company. When you need a loan to facilitate your requirements in the company, the banks inquire for a copy of the financial accounts your company has dealt with. The suppliers in the UAE also ask for the financial account statements to help you in your credit facility

All businesses follow accounting standards quite well. If you are new to the business and don’t know any detail about this – The article is aimed to help you understand different types of standards used internationally and the one recommended for managing business accounts for regulations compliance in UAE.

WHAT ARE THE ACCOUNTING STANDARDS? DEFINITION & TYPES

Accounting standards are the principles set for financial reporting. The rules are basically specified to record how the transactions are to be made. It provides some leverage and some financial information to the creditors, lenders, and investors.

Basic accounting is very much required for the businesses operating in Dubai or anywhere in the world. The accountant needs to constantly update the financial records; otherwise, there will be too many accounts to deal with. The companies have to install the accounting software to process all the financial transactions happening from and to the company. They have to also take care of the receipts, disbursements, reimbursements, and all the receivables regularly too keep the company financially healthy.

Reportedly, many people are confused in UAE about the recent modifications in the design and format of financial record management. Some accounting standards are used internationally. Let’s understand the standards recommended for bookkeeping journal management and the creation of financial statements.

So, the companies adopt different formats and rules to manage their accounting record. In this regard, Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) are two of the most frequently used bookkeeping principles.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

International Accounting Standards Board (IASB) has issued IFRS as the international accounting standard for accomplishing the tasks and activities of financial management. It deals with particular types of events and transactions for financial reporting. The IFRS explains a comprehensive way of working for the accountants to maintain their records. The set of principles are designed to ensure a common language that is well understood by the business people and accounting companies across the world.

ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

GAAP is comprised of all essential principles and rules to deal with the intricacy, complexities, and accounting legalities for managing corporate accounting.  GAAP is the foundation of accounting methods as approved and used by the Financial Accounting Standards Board (FASB). The deployment of GAAP requires extensive accounting services because it is used to manage balance sheets, revenue recognition, and outstanding classification of items and shared estimations for public disclosure.

DIFFERENCE BETWEEN IFRS AND GAAP

Presently, more than a hundred countries in the European Union (EU) and Asia are actively using IFRS to communicate accounting affairs globally. However, the USA and Canada are still adhering to GAAP. The major differences between the standards of accounting are as given:

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

1 The method is used by more than 100 countries across the globe. The method is used by a few countries, including the USA and Canada. It is a generalized technique defined by the companies distinctively.
2 The standards are approved by the International Accounting Standard Board (IASB) Financial Accounting Standard Board (FASB) has developed and introduced the method.
3 IFRS enables the business to reverse inventory under critical business conditions Businesses are prohibited from making inventory reversal while using GAAP
4 The business can capitalize on the development costs in IFRS. The Cost of development is considered an expense for the companies.
5 IFRS doesn’t support Last In First Out (LIFO) management processes. GAAP supports Last In First Out (LIFO) management processes.

IFRS ARE THE MANDATORY ACCOUNTING STANDARDS IN DUBAI UAE

The Securities and Commodities Authority (SCA) has made it mandatory for the businesses to comply with IFRS as stipulated by the Central bank of the UAE. So, all the companies listed in the NASDAQ Dubai (Formerly known as DIFX), Dubai Financial Market (DFM), or Abu Dhabi Securities Exchange (ADX) is required to manage their accounting records in accordance with International Financial Reporting Standards (IFRS). Therefore, all the companies listed legally on the Abu Dhabi Securities exchange from 2003 onwards are supposed to submit the IFRS financial statements.

Although it is not binding on the businesses that are not listed in the mentioned exchanges, it is suggested to implement IFRS as soon as possible to avoid complications and ensure transparency. If you ever think of opening a company in UAE, you can always search top accountant firms near me on the internet and avail your best services for your company. All the accountant firms in Dubai offer top-notch services, and they also give you some financial consultation. They are really helpful and trustworthy.

In the past, there was no pre-defined standard for the businesses in the UAE, but recently, the state has recommended the businesspeople to deploy IFRS for accounting tasks and activities. Sometimes, the business people get confused to decide what to consider using for their financial regulations compliance.

TRUST CERTIFIED ACCOUNTANTS!

Accounting is essential for every organization located anywhere in the world, including the UAE. It is a process where you record, measure, classify and verify financial information. Also, accounting helps you know where you have used your company funds, and you can know the value and nature of your company’s liabilities.

All the companies functional in UAE are supposed to adopt the IFRS method. Remember! Transparency and corporate ethics are always to be followed. The accounting of your company has to be done with integrity. To facilitate this requirement, you need to hire top accounting services in Dubai to ensure the accuracy of record-keeping and compliance with the standards.

Searching for accounting bookkeepers near you? Contact Us to ensure compliance with the latest rules and regulations in the financial management!

How businesses can register for VAT in the UAE

How businesses can register for VAT in the UAE

  • VAT for Business
  • Registration Process
  • Documents Required for VAT Registration
  • Check your VAT Registration

 

If you plan to launch a business in the UAE, you may need to register for VAT (Value Added Tax) first. Companies that meet the set criteria for VAT must register with the Federal Tax Authority (FTA) and submit VAT returns at the end of every tax period. So, how does VAT registration in the UAE work for businesses? Read on as we review the required documents and the online process to apply for VAT registration in the UAE.

wooden blocks spelling VAT placed on dirhams

 

 

The UAE VAT tax registration applies to most businesses

DOES VAT APPLY TO MY BUSINESS?

All businesses must meet the following requirements to apply for UAE VAT registration.

  • VAT is obligatory in the UAE on businesses whose taxable supplies and imports over the past year exceed the mandatory threshold of AED 375k.
  • It also applies to businesses that foresee the total value of their taxable supplies and imports exceeding AED 375k in the next 30 days. This threshold does not apply to foreign companies.
  • Similarly, if the total value of taxable supplies and imports or taxable expenses during the last 12 months exceeds AED 187.5k or it is expected that the taxable supplies and imports or taxable expenses will exceed AED 187.5k in the next 30 days, the voluntary registration threshold is met.

WHAT IS INCLUDED IN TURNOVER FOR VAT TAX IN THE UAE?

  • Turnover for VAT in the UAE includes taxable supplies (all goods and services supplies made in the UAE).
  • The value of taxable goods and services imported and a whole or part of the other business.
  • It also includes the value of taxable supplies made by the acquired whole or part of the business.
  • On the other hand, taxable supplies include all goods and services made in the UAE. Only a limited number of supplies are exempt from the taxable supply for VAT.

 

HOW CAN BUSINESSES REGISTER FOR UAE VAT TAX?

Unregistered businesses in the United Arab Emirates may register for Value Added Tax via the Federal Tax Authority online portal.

The VAT registration process in the UAE is a simple two-step process. First, set up an e-service account and second, access the new account and complete the VAT registration.

Keyboard with Online Registration key in orange

 

 

VAT registration in the UAE procedure is straightforward 

CREATE AN E-SERVICES ACCOUNT

An FTA-approved e-Services account is mandatory for businesses to register for VAT in the UAE successfully. To start the process, visit the Federal Tax Authority website and follow these steps to open an e-Service account:

  • Select the Sign-up button on the home page and fill in details like a password, email ID and security code.
  • After filling out and submitting the form, an automatic email will be generated and sent to your registered email ID for verification.
  • Log into your new e-Services account with your username and password.

 

REGISTER FOR VAT

Your e-Services account will be created after you verify your email address. After logging in successfully, you will be asked to ‘Register for VAT’ and taken to the “Get Started Guide.”

The guide details specific requirements related to VAT registration in the UAE. Divided into short sections, it discusses the process and the data required to complete it.

It is strongly recommended that you read the guide carefully to avoid errors. After you have read it, click “Proceed”, and a VAT registration form will appear.

The form includes eight sections, with each requiring specific details.

  • About the Applicant
  • Details of the Applicant
  • Banking Details
  • Contact Details
  • About VAT Registration
  • Business Relationships
  • Declaration
  • Review and Submit

Applicants must complete all mandatory fields of a current section before moving on to the next. Remember:

  • You should also save your progress as you fill out the form.
  • After completing the sections with the necessary details, click Save and Review. At this point, you can check your answers before submitting them.
  • Click on Submit for Approval after you have reviewed the details. The application’s status on the Dashboard will change to Pending.
  • You will also receive an email confirming that your application has been received.
Women working on paid invoice on laptop

 

 

VAT registration in the UAE deadline has to be adhered to 

 

 

 

WHAT ARE THE DOCUMENTS NEEDED FOR UAE VAT TAX REGISTRATION?

Documents to be submitted while registering your business on the FTA e-services portal include the following:

  • A copy of the business trade license.
  • Passport copies of the partners or company owners as declared on the license.
  • Copy of the company’s Memorandum of Association (MOA).
  • Bank account details.
  • Contact details of the company.
  • Emirates ID copy held by the business partners or owners.
  • Nature of performed businesses and activities.
  • An income statement from the last 12 months.
  • Anticipated income & expenditure for the upcoming 30-days after receiving the Tax Registration Number

 

HOW TO CHECK VAT REGISTRATION?

You can always review the progress of your application after completing the requirements on the UAE VAT registration portal. Knowing the following terms can help you keep track of the application.

  • Drafted: The registration form hasn’t been completed or submitted.
  • Pending: The form has been received by the FTA and is either under review or withheld until additional information is received from the applicant.
  • Suspended: Your registration form has been suspended, a Tax Registration Number (TRN) has been received, and your tax group registration has been approved.
  • Rejected: The FTA has rejected the registration form.
  • Approved: Registration has been approved, and your business is registered for VAT.

 

LATE REGISTRATION

Those who fail to register for VAT under the deadline set by the Federal Tax Authority are liable to pay a fine of AED 10k. Registered users can access the “late registration penalty” option to pay the late fee on their dashboards.

Once the FTA reviews your application and finds it satisfactory, it will issue a Tax Registration Number (TRN). The official confirmation will be in the form of a VAT Certificate.

 

 

If you wish to stay informed about developments and fiscal news in the United Arab Emirates, you can contact us and schedule an appointment with the most suitable professional for your specific case, using the following Schedule.

Value Added Tax (VAT) in the UAE

Value Added Tax (VAT) in the UAE

  • What is VAT?
  • VAT for Business
  • Zero-Rated Sectors

 

The Valued Added Tax (VAT) was introduced in the United Arab Emirates back in 2018. It is part of the different UAE taxes imposed by the government and depends on the consumption of services and goods at every point of the supply chain in the country. VAT is an effective way for registered businesses to act as tax collectors on behalf of the Federal Tax Authority (FTA), with the end consumer ultimately bearing the VAT cost.

If you are new to the UAE and are unaware of how VAT works, read on to find out how it can affect you and whether you are eligible for refunds.

WHAT IS VALUE ADDED TAX?

vat magnified

 

 

 

 

VAT in the UAE is a type of indirect tax

Local governments implement taxes to generate revenue for public services such as hospitals, transportation and security. While there are different taxes, they can broadly be classified into two categories: direct taxes collected by the government and indirect taxes collected by an intermediary (like a retail store) on the government’s behalf.

Valued Added Tax, also referred to as a general consumption tax, is an indirect tax imposed on most services or products sold or purchased. VAT’s standard rate in the UAE is 5%, and it is the responsibility of the Federal Tax Authority to conduct audits and implement and ensure the collection of the tax.

 

VAT REGISTRATION FOR BUSINESSES

As per the UAE VAT law, Value Added Tax applies to businesses operating in the UAE provided that certain conditions are met. According to the UAE government:

  • Businesses with a yearly turnover exceeding AED 375k on taxable imports and supplies are required to register for VAT.
  • Businesses that have a yearly turnover above AED 187.5k and under AED 375k have the option to register for VAT.

A business pays the government with the tax it collects from customers. Consequently, it also receives a refund from the government on the tax that is paid to suppliers.

Wondering how to register for VAT in the UAE? If you want to set up a venture in the country, learn how to register your business for VAT in the UAE.

 

HOW CAN BUSINESSES REGISTER FOR VAT?

Business can use the e-service section on the website of the FTA to register for VAT. For this, an online account needs to be created on the website.

 

WHAT BUSINESSES CAN LEVY VAT?

The Value Added Tax applies to tax-registered businesses managed on the country’s mainland and in the free zones. However, if a free zone is a “designated zone” by the UAE cabinet, it must be considered outside the UAE for tax purposes. The transfer of goods is tax-free between designated zones.

  • VAT-registered businesses are required to charge VAT on supplied taxable services or goods.
  • They can reclaim any VAT paid to services or goods related to business.
  • These businesses must relevant records to allow the government to check if everything is in order.

VAT FILING IN THE UAE

Tax-registered businesses or “taxable persons” must submit a VAT return to the Federal Tax Authority at the end of each tax period.

A VAT return shows an individual’s VAT liability by summarising the value of the purchases or supplies he has made during the mentioned period.

 

WHAT IS VAT LIABILITY?

VAT liability is the difference between the input tax recoverable or VAT incurred on purchases and the output tax payable, or the VAT charged on the supply of services and goods.

If the input tax amount is less than the output tax, businesses must pay the difference to the FTA. If the output tax is less than the input tax, the taxable entity will be entitled to recover the excess input tax.

All tax-registered businesses in the UAE must record financial transactions and ensure their financial records are updated and accurate to avoid legal problems.

 

WHEN MUST BUSINESSES FILE TAX RETURNS?

Taxable businesses have to file VAT returns with the FTA within 28 days of the tax period. This is how the tax periods are organised:

  • On a monthly basis for businesses that have annual revenue of around AED 150 million or more.
  • On a quarterly basis for businesses that have annual revenue below AED 150 million.

 

ZERO-RATED SECTORS

The FTA has revealed sectors that are assigned zero-rated tax. VAT is charged at 0% on the following supply categories:

  • International transportation and supplies.
  • Supply of certain healthcare services in addition to relevant services and goods.
  • Export of services and goods outside the Gulf Cooperation Council (GCC).
  • Certain education services with relevant services and goods.
  • New residential properties within three years of construction.
  • Certain precious investments like silver and gold.
  • Supply of certain types of land or sea transportation like ships and aircrafts.

 

WHICH SECTORS QUALIFY FOR VAT EXEMPTION IN THE UAE?

calculating home vat

 

 

 

 

Certain real estate transactions are exempt from VAT in the UAE

Certain sectors are exempt from VAT as per FTA guidelines. For example, some real estate transactions are exempt from VAT.

Sectors that fall within VAT exemptions in the UAE include:

  • Bare land
  • Local passenger transport (including flights within the UAE)
  • Sale or rent of residential properties after the first supply
  • Supply of certain financial services

 

If you wish to stay informed about developments and fiscal news in the United Arab Emirates, you can contact us and schedule an appointment with the most suitable professional for your specific case, using the following Schedule.

Taxes In Dubai and United Arab Emirates

Taxes In Dubai and United Arab Emirates

  • Income Tax
  • VAT
  • Excise Tax
  • Corporate Tax
  • Tourist Tax
  • Contact Tax Authorities

The UAE attracts people from across the globe for its lifestyle and favourable taxation policies. The high standards of living are backed by a robust economy. All consumers and companies operating in the region have to pay different taxes in the country. This handy UAE taxes guide covers the different taxes in the UAE that apply to goods and services, as well as the tax percentages consumers have to pay.

 

WHAT ARE THE DIFFERENT TAXES IN THE UAE?

Major infrastructure, public parks, markets and healthcare facilities are funded by the UAE Government. To provide greater conveniences to residents, the authorities decided to reduce the dependence of the country’s revenue stream on hydrocarbons and thus, implemented different taxes. These taxes also help regulate certain products that are harmful to society.

Let’s now look at the different taxes applicable in the UAE and answer the most frequently asked questions about these extra charges.

 

IS THERE INCOME TAX IN THE UAE?

One of the most frequently asked questions is whether there is any personal income tax in the UAE. Please note that the UAE does not charge direct income tax on individuals residing in the country.

 

VAT IN THE UAE

Value Added Tax, commonly known as VAT, is one of the most important taxes in the UAE for consumers. This indirect tax is payable for goods and services and is levied at each stage of the supply chain. This UAE tax was introduced on 1st January 2018.

Stack of dirhams with the word VAT next to it, signifying the concept of VAT in UAE

 

 

VAT was first introduced in the UAE in 2018

VAT is usually borne by the end-users, with businesses generally collecting and accounting for VAT. Registered businesses collect VAT on behalf of the Federal Tax Authority (FTA), which is responsible for implementing VAT and other taxes in the UAE. They can then apply for refunds and rebates every quarter.

 

WHAT IS THE VAT PERCENTAGE IN THE UAE?

VAT in the UAE is charged at 5%.

 

WHAT IS THE VAT APPLICABLE ON?

Value Added Tax in the UAE applies to the supply of all goods and services, including food and beverage, commercial buildings, hotels and serviced accommodation, jewellery and electronic services.

However, certain items are zero-rated or exempt from VAT tax in the UAE. The list includes:

  • Private and public school education
  • Healthcare
  • International transport of goods and passengers
  • Sale or rent of residential buildings
  • Activities by not-for-profit organisations
  • Land
  • Local public passenger transport
  • Certain investment precious metals, amongst others

 

WHICH BUSINESSES HAVE TO REGISTER FOR VAT?

Businesses must register to collect VAT if their taxable imports and supplies exceed AED 375,000. However, companies whose taxable imports and supplies are below AED 375,000 but above AED 187,500 can choose to register for VAT if they wish.

VAT applies to tax-registered businesses in the mainland and free zones. However, free zones recognised as ‘designated zones’ are considered outside the UAE for VAT purposes. This means that the transfer of goods between designated zones is VAT exempted.

 

DO TOURISTS HAVE TO PAY VAT IN THE UAE?

Yes, tourists have to pay VAT when making purchases in the UAE. However, they can request refunds at their departure port*. For instance, travellers can request VAT refunds at the Dubai International Airport through self-service kiosks when departing the country.

*Presently, VAT refund for tourists in the UAE is only possible if they purchase products from retailers participating in the “Tax Refund for Tourists Scheme.”

 

EXCISE TAX IN THE UAE

Excise Tax is a type of indirect tax in the UAE that is levied on specific goods, including products that are harmful to people’s health or the environment. Authorities introduced the excise tax in the UAE in 2017; however, new excise tax rates were announced in December 2019. The end customer bears the cost of the excise tax.

View of soft drink cans, for which people have to pay a new tax in UAE

 

 

Excise tax in the UAE is charged on goods that are harmful to health

Excise tax in the UAE is implemented to curb the consumption of harmful products and create a new revenue source to fund public services.

WHICH GOODS IS EXCISE TAX APPLICABLE TO?

Wonder ‘what items have excise tax in the UAE?’ Well, the excise tax applies to:

  • Tobacco products
  • Carbonated drinks (does not include sparkling water)
  • Energy drinks
  • Electronic smoking devices and tools (and liquids used in these devices)
  • Sweetened drinks

WHICH GOODS ARE EXEMPTED FROM EXCISE TAX?

The list of products exempted from excise tax in the UAE includes:

  • Ready-to-drink beverages (with at least 75% milk or milk substitutes)
  • Baby food or baby formula
  • Beverages for special dietary needs as recognised under Standard 654 of the GCC Standardization Organization
  • Beverages consumed for medical uses as recognised under Standard 1366 of the GCC Standardization Organization

 

WHAT ARE THE EXCISE TAX RATES IN THE UAE?

The excise tax percentage in the UAE for eligible goods is as follows:

  • 50% for carbonated drinks
  • 100% for energy drinks
  • 100% for tobacco products
  • 100% on electronic smoking devices and tools (and on liquids used in these devices)
  • 50% on products with added sugar/other sweeteners

 

CORPORATE TAX IN THE UAE

Currently, corporate tax only applies to specific industries or companies in the UAE such as oil companies and branches of foreign banks. Also, each emirate has its corporate tax rate.

However, from June 2023, a 9% new corporate tax in the UAE will be enforced on company profits. Businesses with profits up to AED 375,000 will not be taxed. Similarly, companies working on natural resources extraction will remain on the Emirate level corporate taxation.

People calculating and looking at spreadsheets on a table, for corporate income tax UAE

 

 

Corporate tax will be collected from June 2023

TOURIST TAX IN THE UAE

Tourists in the country have to pay a special tax at restaurants, hotels, hotel apartments and resorts. These facilities may charge one or more of these taxes in the UAE:

  • 10% on room rate
  • 10% as service charge
  • 10% as municipality fees
  • City tax (which ranges between 6% – 10%)
  • 6% as tourism fee

In 2014, the Tourism Dirham Fee in Dubai was introduced to be charged by hotels, hotel apartments, guest houses and holidays homes in the emirate. This Tourism Dirham Fee is charged per room per night and ranges between AED 7 to AED 20, depending on the hotel rating.

The Tourism Dirham Fee for different categories of hotels is as follows:

  • Five-star hotel or resort: AED 20
  • Four-star hotel or resort: AED 15
  • Three-star and two-star hotel: AED 10
  • One-star hotel: AED 7

The tourism fee is charged at 4% in Abu Dhabi. Daily charges in the UAE capital also include a municipality room fee, AED 15 per room per night.

Tourist arriving at the airport, who will have to pay tourist tax in the UAE

 

 

While tourists can get VAT refunds, they must pay a tourist tax when visiting the country

 

 

If you wish to stay informed about developments and fiscal news in the United Arab Emirates, you can contact us and schedule an appointment with the most suitable professional for your specific case, using the following Schedule.