Income Tax in Dubai, UAE for Residents and Non-residents – Rates, Law, General Information

Any foreign investor who is going to open a business in the United Arab Emirates looks for the answer to the following question: “Is there income tax in Dubai? And if there is one, what is its rate?” This country is known to be the only country with almost no taxation. Such taxes as sales tax or personal profit tax are not collected at all. There is no single law on income taxes in the UAE as a whole; instead, there are local regulations, governing taxation rules on the main territory and in every free zone (each one has own unique taxation scheme with its preferences to particular areas of business). It means that each Emirate is vested with the right to impose any kind of taxation. Nevertheless, no Emirate is going to introduce either personal income tax or other types of dues. Local government and the local authorities reject all suggestions from the International Monetary Foundation (IMF) to impose profit taxation.

Dubai income tax rates

Although in most cases business and individuals are exempted from paying taxes in this country, there are still some exceptions to the rule. Let's look at the local tax rates for foreigners (Americans, Indians, Germans, Russians, and others).

According to local tax law, all companies are liable to taxation at a maximum rate of 55%. However, in practice, this applies only to oil companies and foreign banking institutions. Foreign companies, which are engaged in oil exploration, are liable to the corporate profit taxation at the general tax rate of 55%. However, the actual due rate varies in different Emirates, ranging between 55% and 85%. Its amount depends on the special terms agreed in each specific case — the local governments of every single Emirate sign special agreements with the oil and gas companies. These agreements specify the way of calculating the due rate.

Foreign banking institutions are also liable to corporate profit taxation on the territory of the UAE, but it is not applied to all the Emirates. The corporate profit tax at the rate of 20% is levied on the representative offices of the foreign banks in the Emirates. Corporate taxation rules of the Emirates are based on their own legislation, whereas Abu Dhabi does not have special legislation dealing with taxation of branches of foreign banking institutions.

Special degrees are governing the taxation of joint venture companies in this country. All the other types of business and personal income are completely free of any dues. This is also applied to all the forms of foreign remittances in the form of royalties, interests, dividends or fees for technical services and other types of capital gains of any nature.

Even though special profit tax decrees were adopted in some Emirates, they have no real force. Any major company, which carries on business on the territory of the UAE, can make arrangements with the local authorities of the respective Emirate in order to avoid high taxation. The same applies to the foreign companies, which are looking to reduce the applicable due rate stated in the decree.

Conclusion

So let us summarize it, the personal income of any nature is taxed with a zero rate here. The currently discussed potential changes in the local legislation are applied only to the introduction of the VAT and no changes expected in regards to personal taxation.

As for the corporate entities – there is no difference in taxation whether the company is UAE tax resident or not. The same favorable terms are applied to both types.