UAE corporate income tax (or equivalent)
Currently, the UAE federation does not impose a federal corporate income tax in the Emirates. However, most of the Emirates constituting the UAE federation introduced income tax decrees in the late 1960’s and taxation is therefore determined on an Emirate by Emirate basis. Tax residence under the tax decrees of the various Emirates is based upon the French concept of territoriality. Basically, the French territoriality concept taxes profits based on territorial nexus, rather than taxing profits earned outside the country. Under the Emirate based tax decrees, corporate income taxes may be imposed on all companies (including branches and permanent establishments) at rates of up to 55%. However, in practice the corporate income tax is currently imposed only on oil and gas companies and branches of foreign banks having operations in the Emirate. In addition, some of the Emirates have introduced their own specific banking tax decrees which impose tax on branches of foreign banks at the rates of 20%. Entities established in a free trade zone in the UAE are treated differently than a normal ‘onshore’ UAE entity. As previously noted, free trade zones have their own rules and regulations and typically, from a tax perspective, they generally offer guaranteed tax holidays to businesses (and their employees) set up in the free trade zone for a period between 15 to 50 years (which are mostly renewable). On the basis of the above, most of the entities registered in the UAE are currently not required to file corporate tax returns in the UAE, regardless of where its UAE business is registered.
Personal income tax
There are currently no Federal or Emirate level personal income taxes imposed on individuals working in the UAE. There is a social security regime in the UAE which applies to employees who are GCC nationals. Generally, for UAE nationals the social security payment is at a rate of 17.5% of the employee’s gross remuneration as stated in an employee’s employment contract and applies regardless of the free zone tax holidays. 5% is payable by the employee and the remaining 12.5% is payable by the employer. The rates can differ in different Emirates. The withholding obligation is on the employer. There are no social security payments for expatriates. For completeness, expatriates employed by a UAE employer are entitled under the UAE Labour Law to a gratuity payment (or an ‘end of service’ benefit). End of service benefits are not applicable to UAE national employees. On the basis of the above, individuals in the UAE are currently not required to file personal tax returns in the UAE.
There is currently no VAT in the UAE. However, the UAE (along with the other member countries of the Gulf Cooperation Council) has committed, in principle, to introduce a VAT system and UAE has made significant progress towards its introduction, which is expected in the near future. At this point in time there is no confirmation on its rates or how this will effect business operations in the UAE (onshore or free trade zones).
There are currently no withholding tax regulations in the UAE that would apply to payments such as royalties, interest or dividends etc. made from the UAE entities to another person (resident or nonresident). That is, payments of any kind made by a UAE company should not suffer any withholding taxes in the UAE.
Municipal property taxes are levied in the various emirates in various forms, but generally as a percentage of the annual rental value. In some cases, separate fees are payable by both tenants and property owners. (For example, in Dubai they are currently levied at 5% of the annual rental value for tenants or for property owners at 5% of the specified rental index). These levies are administered differently by each emirate. These levies may also be collected at the same time as (or as part of) licence fees, or the renewal of licences, or by another method. (For example, in Dubai the payments have recently started to be collected via the Dubai Electricity and Water Authority’s billing system).
Most emirates impose a 5-10% hotel tax on the value of hotel services and entertainment.
Transfer pricing and thin capitalisation
There is currently no transfer pricing regime in the UAE. There are currently also no thin capitalisation (or debt-equity ratio) requirements in the UAE.