If you're considering moving to the UAE to live and work, you've probably heard that Dubai has no income tax.
The city of Dubai apparently levies no income tax if you live and work there, or if you buy and rent investment property in the city.
Neither corporations nor individuals in the UAE are taxed on their wealth.
That isn't the whole story though. To clear the air, let us explain the facts about taxation in Dubai.
Is Dubai A Tax-Free Emirate?
Is Dubai truly tax-free? Certainly, but not all of the time! There are times when you'll have to deal with taxation. So, if you're thinking about moving to Dubai to work and live, there are a few things you should know about taxation there. We’ve explained this in detail in the below section.
Dubai Income Tax
According to reports on a broadcast last year, Sheikh Mohammed bin Rashid Al Maktoum, the UAE's Vice President and Prime Minister and Ruler of Dubai, stated that his country would never impose an income tax.
It is unlikely that Dubai will change its zero income tax policy in the near future. However, you may need to pay taxes on your income if you earn your income in Dubai but are tax resident somewhere else. This is because taxes depend on where you live for tax purposes.
On the other hand, if you become a permanent resident of the UAE or become a non-resident to work and pay taxes in your country of origin, then you should be fine. The salary you earn in Dubai will be tax-free.
Residents of Dubai also enjoy tax-free rental income, stamp duty-free purchases, and a zero capital gains tax.
You now know that living in Dubai doesn't always entitle you to a tax-free income. Mainly, it's your tax residency that matters. Take a closer look to understand this further.
Is Dubai your tax residence?
When you earn a salary in Dubai but are a tax-resident in another country, then the national income tax may apply. Expats typically pay taxes in accordance with their residency.
The government of Dubai will never rely on taxation to relieve debt, so an income tax is unlikely to be imposed in the future. You may be liable to pay taxes on your income if you earn an income in Dubai but are a tax resident of another country.
Where do you live in terms of tax residency?
When you work and live in Dubai for just six months, you will likely be considered a resident of your home country for tax purposes, making you liable to pay taxes there.
Rental income is taxable in Dubai. So, if you live abroad and earn rental income from Dubai, you will need to include it on your tax return where you reside and pay taxes if your income exceeds the nil rate band.
As a non-resident of Dubai for a long enough period of time, or as a resident of another country for tax purposes, you may be able to earn your salary in Dubai without paying taxes.
Other taxes in Dubai
Contrary to popular beliefs, Dubai does have other taxes. As an example, the profits of international banks and energy companies operating in the UAE are taxed at the federal level.
Furthermore, any hotel stay or restaurant meal in Dubai is subject to a 10% tax. Alcohol is heavily taxed upon importation, with 50% on bringing it into the country and 30% on buying liquor for home use.
In addition, there is also a form of council tax which you pay with your utility bills - and many protest this tax since it is supposedly for street lighting, waste collection, etc. but most residents end up paying for it through maintenance fees. Also, there is a municipality tax of 10% as well as a municipality tax of 5% on rental income.
A 5% VAT was implemented in the UAE in 2018 on most goods and services sold there.
Do you wish to live tax-free in the UAE?
If you are a tax resident in Dubai, you can earn your salary tax-free in that emirate as well if you do not have any other obligations for the payment of tax on foreign-earned and sourced income.
In order to do this, you would need to obtain a residence permit.
In order to live in the UAE, people other than citizens of the UAE and GCC will need to have a residence visa. For someone to be regarded as a resident in the UAE, they must obtain a residence permit. One must generally have a sponsor to obtain a residence permit within the jurisdiction.
For many ex-pats, the company they work for acts as their sponsor and secures their residence visa. Those who come without an employment contract can obtain UAE residency in two other ways:
- Investment in real estate (property residence visa)
- Create your own company to act as a sponsor
Real estate investor/property residence visa
A new system was introduced by the UAE government in June 2011 extending the validity of visas granted to real estate investors by up to 3 years.
An investor visa can be issued only in the following cases:
- The property has been built and is ready for occupancy
- The applicant proves ownership (title deed from the Land Registry)
- There is no mortgage on the property and it is worth at least AED 1 million (US$300.000)
- The applicant's income exceeds AED 10.000 (US$3.000) monthly.
Creating your own company
The other way to become a legal resident is to form a corporation.
To apply for a residence permit in a given jurisdiction, one usually needs a sponsor. In most cases, foreigners can obtain sponsorship by setting up a company. In this case, the sponsor is the company.
The company must be physically present in the UAE. As a result, free zones in the northern emirates represent the most appealing and cost-effective options.