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Features of Personal Income Tax. Why is the UAE the Best Option Regarding Income Taxation?

In the international practice of taxation, income tax can have various names – personal income tax, corporate income tax, corporate tax, etc. But its meaning is always the same – it is a tax on personal or corporate income received by the taxpayer. Income tax rates vary widely in different countries (tax rate is ranged from 0 to about 60%). The ease of doing business directly depends on the amount of income tax; the higher is the income tax rate, the more difficult it is for companies to develop. Therefore many jurisdictions around the world have developed special rules on income tax refund (calculation is based on tax return), special zones are established with a reduced (or even zero) income tax rate. In the article, we will look at some places with the best personal and corporate income tax rates for your business and residence.

Personal and corporate income tax rates around the world

Individual Tax

Among the countries of the world, the largest personal income tax is imposed in developed countries with high social standards of living (and, accordingly, large social benefits, which are covered by these taxes). So, among the leaders in terms of the personal income tax rate, there are the United States (40%) and Japan (38%), the Netherlands (34.5%), Brazil (34%), Belgium (33.99%), France (33.33%) and Italy (31.4%). But as for the general level of taxation (that is, the total rate of all taxes that are in effect in the country, including personal income tax as well), the Gambia, Comoros, Congo, Argentina, and Uzbekistan are in the top of the world tax rating. Italy and Brazil are also in the top twenty of excessive taxation countries. The lowest personal tax and corporate tax rates are in Montenegro (9%), Albania, Bosnia and Herzegovina, Bulgaria, Gibraltar, Macedonia, Paraguay, Qatar (10%), if we do not take into account tax-free countries and those with zero corporate income tax (the UAE, Bahamas, Bahrain, Bermuda).

Personal and corporate income tax rates in the UAE

There is no personal income tax in Dubai, the UAE (except for income taxes for companies in the oil and gas industry, taxes for the financial sector, taxes for hotels and taxes for restaurants). Individual persons who reside here are exempted from the personal income taxes, real estate/property taxes, or taxes on any form of income. This sounds like there are no taxes at all. However this is not correct as there are several taxes in other forms – import duties on all goods imported into the country from abroad, personal income received in the form of rental income from real estate, entertainment and hotel business are also charged with a special tax. Citizens of the UAE also contribute a minor percentage to social security paid from their income. The rate of value added tax (VAT) is one of the lowest and is only 5% in the country.

The only personal taxes paid in the UAE by individuals are:

  • Tax on personal income on real estate is charged automatically and added to the utility bill of a tenant; this tax is 5% from the rent.
  • Sales and purchase of real estate – fix transfer fee of 4% payable by two persons: seller and buyer.
  • Import duties (tax) on various items – consumables and other – imported into the UAE to the mainland. Regular this tax is about 4%. Note – if imported to free trade zone – no tax is applicable.

In all Emirates of the UAE except Abu Dhabi, personal rental income from commercial premises, as opposed to residential properties, is taxed at the rate of 10%. This personal tax is levied over service charge payments. So the owner of residential or commercial properties who has personal rental income from such properties does not have to file any tax returns as the applicable taxes are automatically levied together with the service charges from the tenant.

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