Taxes and charges in Dubai

Oil production has ensured the United Arab Emirates (UAE) a comfortable income for decades. This high level of income has enabled the government to exempt its citizens from many charges that are common in Europe, such as payroll taxes, capital gains tax, income tax and inheritance tax. A kind of paradise that is gradually being called into question by several converging factors: falling oil prices and the energy transition announced by many countries.

All the region’s crude-producing countries are affected by this major trend, and the UAE is no exception. Thus, indirect taxation has been in place since 2018 with the Value Added Tax. The level is still low, at 5%, and concerns all goods and services marketed in the country. This has naturally led to a decline in purchasing power. As in the European Union, the advertised price already includes VAT.

Direct taxation previously existed, particularly on property. Fees such as a housing tax and the registration of property transfers had to be paid. There are also taxes on innovative patents.

Given the Muslim context, there are customs duties on unethical products such as energy drinks, soft drinks, tobacco and, of course, alcohol.

Unjustified fear

Some might think that, to counteract the predicted drop in oil revenues, the government would resort to taxing the income of individuals (Emiratis and expatriates) to meet the cost of the state budget. This type of taxation has shown its limits in the West. Fortunately, the Emir of Dubai has reassured the business community by solemnly stating that there is no question of introducing personal income tax.

Taxation specific to expatriation

As you know, all income generates potential taxation. So it’s important to consider whether you need to stay in Dubai for a longer or shorter period of time. If you’re in Dubai for up to 90 days on a tourist-type visit, what if you need to stay longer, for business or because your work takes you there?

Resident visas are at the discretion of each country. Whether or not you qualify as a “non-resident” and can therefore benefit from the UAE’s tax advantages depends on a number of factors, not least your potential property holdings in Dubai. In most cases, you will have to pay tax on your Dubai income in your home country or on your return.

States generally sign bilateral treaties to regulate taxation between their respective nationals and avoid double taxation. This good international practice is no exception in the Emirates, and in Dubai in particular. There are more than a hundred agreements in force to prevent double taxation, and you will certainly benefit from them if you decide to move to Dubai, depending on your nationality.

As a result, you can enjoy zero tax on the income you generate in the UAE, as well as a particularly favorable regime for any dividends you may receive.

But there are exceptions to this rule. If you are a national of South Africa or the United States of America, you will have to pay tax on income earned in the UAE. For example, from the 2nd quarter of 2020, you will have to pay 45% tax on income in excess of 260,000 dirhams (around 57,700 euros). You should therefore take this into account in your expatriation plan or project.

VAT: a new feature in the United Arab Emirates

While you may be familiar with the value-added tax mechanism in your home country, this mechanism and additional cost are relatively new concepts in the region.

Saudi Arabia, the Emirates’ powerful neighbor, is also affected by the announced reduction in oil revenues. The governments of the Arabian Peninsula are therefore obliged to find other sources of budgetary income to meet their regal expenditures. Nevertheless, the local population is getting used to this state of affairs, and it is highly likely that other fiscal instruments will be introduced in the future, as in other Gulf Cooperation Council (GCC) countries.

As for VAT, it has been in place since January 1, 2018. For the time being, its single rate is set at 5%. As in other countries, certain products and services are subject to VAT, while others are not. The list is determined by the federal tax authority, and we have provided a summary below:

Zero-rated VAT, to be declared and recovered from suppliers:

• specific educational services and related goods and services
• specific health and care services, as well as related goods and services
• transactions involving specific precious metals
• export of goods and services outside GCC territory (Saudi Arabia, Oman, Kuwait, Bahrain, the United Arab Emirates and Qatar)
• supply of air, land and sea transport such as trucks, buildings and aircraft
• international transport services and related goods and services
• new properties put on the market for the first time, either for sale or rent, within three years of completion of construction

VAT exemption, nothing to declare, nothing to recover from suppliers:

• undeveloped land transactions
• local passenger transport services
• life insurance and certain other financial services
• residential property. There is one exception for Emiratis, who can reclaim VAT on goods and services contracted for the construction of their personal residence. However, this must be done within six months of acceptance of the work or its completion.

If you are planning to import goods into the UAE, you should be aware that you can store them in dedicated warehouses, where they will be treated for tax purposes as being outside the territory. However, as soon as they leave these warehouses to be sold, they will be considered as imports and subject to value-added tax.

Other miscellaneous expenses

In addition to the 5% VAT we’ve already mentioned, the cost of living in Dubai will continue to rise. Taxes and charges will slowly rise to cope with the drop in oil revenues, but we believe they will not reach the levels of Western countries, and as such, the emirate offers a real opportunity for those who want to move abroad.

Once expatriated, you’ll be faced with other expenses that you’ll need to pay to the authorities. Let’s take a look at some of the cases that may arise.

If you are a freelancer or influencer

More and more influencers are choosing Dubai as a base from which to produce their content. In fact, as we’ve seen, the tax system here is highly advantageous, particularly for income from product placement. You will need to obtain a self-employed permit, which will enable you to open a business bank account, use payment facilities such as paypal without restriction and, not least, legal protection in the event of a dispute being initiated by a client. If you’re self-employed and not involved in influencing social networks, this status is highly recommended to avoid possible sanctions and penalties.

If you wish to draw up a will

At some point, you’ll need to take the time to put your affairs in order, and plan for the succession and eventual division of any Dubai real estate you may have acquired during your lifetime. If you make no such arrangements, Islamic law – Sharia law – will apply and they will automatically be divided between your parents, your children and your spouse according to clear terms and conditions. In the event of your death, if you are a father, your minor children will be entrusted to your father if he is alive. If a dispute arises, your assets will be placed in escrow until they are resolved by the courts.

It is therefore wise to draw up a local will to ensure that your wishes are respected and do not fall foul of legislation that may not correspond to your wishes, in particular the custody of children by their mother. You should therefore consult a lawyer and take the necessary steps to avoid serious difficulties for your heirs.

Housing expenses

Just as in your country of origin, you’ll have to pay a number of costs associated with the use and enjoyment of your property, as well as living and living in Dubai. Take them into account for your daily life as an expatriate in Dubai!

Daily life

You will have to pay a tax to register a vehicle. Unlike Dubai’s preferential rates, cell phone subscriptions are quite expensive for expatriates, as is internet access in your home. Because of the very hot climate, you won’t be able to do without air conditioning in summer. The bill can reach the equivalent of 250 euros a month for a small apartment, whereas during the winter months you’ll spend practically nothing.

Hotel tax

As in most countries of the European Union, for example, cities levy taxes on residents. In Dubai hotels, this tax is 10%. Taxes will also be added to your alcohol and tobacco consumption.

Immoral products

Islamic law prohibits certain products. However, you may be able to consume certain beverages if you pay excise taxes: 100% on energy drinks, 30% on alcohol, 50% on soft drinks, 100% on tobacco. If you wish to obtain a license to sell alcohol, it will cost you 270 dirhams per year (around 60 euros).

Council tax for expatriates

Citizens of the Emirates receive free water and subsidized electricity. Unfortunately, this will not be the case for you.

To cover the costs of hygiene, irrigation and maintenance, the city of Dubai charges expatriates 0.5% of the value of the property for owners, and 5% of the value of the rent per year for tenants. So make your calculations and prepare your budget to pay this tax to the Dubai Electricity and Water Authority ! The DEWA will send you a monthly bill plus the amount of this housing tax spread over the twelve months of the year.

Transfer of ownership

If you’re planning to buy or sell property, you’ll need to pay a 4% tax to the Dubai Land Department.

Knowledge and innovation

A small tax will be levied for the use of public services such as applying for a driving license, obtaining a visa, a certificate of registration or company deeds. The amounts are small: 10 dirhams for the “knowledge fee” and also for the “innovation fee”. You’ll need to budget for all these charges.

Departure tax

Normally included in the price of your plane ticket, this tax of 35 dirhams must be paid when you leave the Emirates. There are a few exceptions.

In conclusion

While there are many similarities between the tax systems of your home country and the United Arab Emirates, of which Dubai is a part, there are a number of special features that expatriate applicants should be aware of. Taxation is dominated by Sharia law, but it is possible to make legal arrangements for your inheritance, the fate of minor children in the event of your death, and the division of your assets in Dubai.

Study the legislation carefully, and don’t hesitate to seek local legal advice!