A Complete Guide to Tax Exception in UAE

UAE is the second largest economy in the GCC and has been ranked as the 31st best country to do business in. The UAE does not have any enforced income tax for general business, even though an income tax in UAE decree had been enacted by each emirate.

Out of all the Emirates, Dubai is the most popular one for expatriates because of the wide variety of professional opportunities and for lack of taxes in Dubai. The UAE overall is largely a tax-free country, but that doesn’t mean there are absolutely zero taxes. There are massive tax advantages but there are certain situations where you will be required to pay taxes.

Income Tax

The Federal Government of the UAE does not impose taxes on businesses and individuals and does not have any UAE income tax laws, and the monarchs of Dubai have also said that they will not be using taxation, especially Dubai income tax, as a means of collecting debt money. But if you are earning an income in Dubai but are a tax return status resident of some other country, then you have to declare your earnings and pay an income tax on it — as in you’ve moved to Dubai for a short time and remain a tax resident of some other country. There are certain situations where you can get hundred percent tax exemption in UAE and achieve tax exempt status — these are:

  • If you are absent from the country where you were a tax resident for more than a year.
  • If you spend less than 183 days in that country during the year.
  • If you spend less than 91 days a year in that country over a period of 4 consecutive years.

You may or may not fall under these clauses. But since taxes in any country are tricky, it’s best to consult a financial consultant about your taxes.

Indirect Taxes

There are many indirect taxes that are levied on a regular basis by the emirate of Dubai on expats as well as citizens. There is the municipal tax on hotel revenues and entertainment, heavy taxation on alcohol imports and purchase, tax on rentals income, and road toll which is known as Salik.

But not to dissuade expats from coming to work in Dubai, there are certain types of sales tax exemption in UAE especially in the case of imports and customs. These items include:

Personal and Household Items

Any household or personal use items being brought into the country by non-nationals and expats are state tax exempt provided that they are of a non-commercial nature and must be within the legal statutes put down by customs. This estate tax exemption in UAE is subject to the conditions and controls of the Director General of Customs of the UAE. Anything less than the cash value of AED 3,000 is exempt from taxes or custom duty.

Merchandise Tax Exemption

Merchandise for commercial use is normally a taxed item but in certain cases, the UAE Federal tax return status Government allows for tax exemption or zero custom duty on merchandise. There are certain conditions that must be fulfilled:

  • National goods that are produced within the UAE are exempt — as per the unified customs tariff of the GCC.
  • If the merchandise is a national good and is being returned after export or foreign good that is returned after re-export and these items are returned within one year. This also applies to national of foreign good that have been exported for a temporary period for repair or maintenance.
  • In accordance with international agreements and laws, any imports by diplomatic or consular corps or international organizations are exempt from taxes in the form of customs duty.
  • Military and Charity imports are also tax exempt.

Investment Incentives

Dubai has always been focused toward the growth of industry and business. To this end, it has established various free zones which allow for certain types of tax exemptions. This free zone allows for a tax holiday — which implies a stipulated amount of time, typically 50 years, where your company is exempted from taxes, and no custom duties within the free zones. These free zones which allow for serious amounts of tax exemption are a huge incentive for international businesses and organizations that want to invest in the region.

UAE also has double taxation avoidance agreements with various countries to ensure that expats working within the UAE don’t get charged with taxes in both countries. There are various other tax exemption in UAE laws and rules in the UAE, and various relaxations in taxes to ensure that industry and business thrive in the region and don’t get bogged down by taxes.

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