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Taxes in Dubai:A comprehensive overview
Despite the fact that Dubai and the United Arab Emirates are known as a tax haven, there have also been some direct & indirect taxes in this country since 2017. So far, these taxes have mainly affected entrepreneurs & self-employed persons who maintain customer relationships within the United Arab Emirates or import products into the UAE.
Excise tax
In 2017, taxes were introduced for the first time in the more than 50 years of the United Arab Emirates' existence. The purpose of the excise tax is to tax products imported into the UAE that are harmful to the environment or the human body when imported for commercial purposes. Depending on the product, the excise tax in Dubai and the UAE is between 50-100%.
Alcohol & cigarettes, including electronic cigarettes & accessories, are taxed at 100% for commercial imports. Excise tax is payable on the net purchase price. Drinks and food to which sugar has been added are taxed at 50% on the net purchase price.
The excise tax must be paid before or at the latest upon importation. Trading companies whose customers are not based in Dubai or the UAE are not affected by the excise tax.
- Example
A German e-cigarette wholesaler based in Dubai that sells its goods to customers in Germany is not affected by the excise tax. In this case, tax would only be payable if the products are imported into the UAE.
Value added tax in Dubai (VAT)
With the introduction of value added tax in the amount of 5% in Dubai and the United Arab Emirates in 2018, mandatory bookkeeping was also introduced for entrepreneurs & self-employed persons serving customers in the UAE.
Companies such as restaurants & car hire companies with operations in Dubai or the UAE, which mainly serve local customers, must pay VAT.
Entrepreneurs & self-employed persons whose turnover within the United Arab Emirates is below 375,000 AED (approx. 94,000 EUR) per year do not have to pay VAT.
- Example
A service company based in Dubai invoices services totalling EUR 500,000 to customers in Europe and EUR 65,000 to customers in the UAE in one year. In this case, the company is completely exempt from VAT in the UAE, as the turnover in the UAE is less than AED 375,000 (approx. EUR 94,000).
Corporate tax in Dubai (Corporate Tax)
In June 2023, a corporate income tax of 9% was introduced in Dubai and the UAE for the majority of entrepreneurs & self-employed persons. It does not matter whether the profits are generated inside or outside Dubai or the UAE.
Nevertheless, entrepreneurs and the self-employed benefit from above-average tax allowances and various opportunities for tax optimisation. The tax-free allowance on company profits is AED 375,000 (approx. EUR 94,000) per year.
All operating expenses can be deducted. Salaries, including the salaries of managing partners, can be claimed for tax purposes at 100%.
- Calculation example
A company in Dubai generates an annual profit of €350,000 before deducting the salary costs of the managing partner. After deducting the tax-free allowance, a profit of approximately €256,000 would be taxable at 9%. This would result in a tax burden of €23,040.
However, if the managing director pays himself a salary of EUR 25,000 per month into his private account in Dubai, this salary can be deducted for tax purposes. This reduces the company's profit to EUR 50,000 per year and thus below the tax-free allowance of AED 375,000. As there is no income tax in Dubai and the United Arab Emirates, the effective tax rate in this case is reduced to 0%.
Tax-free business activities
Small Business Relief
One of the most attractive measures that benefits small businesses in Dubai and the UAE is the Small Business Relief. Until 31.12.2026, companies that are under AED 3 million (approx. € 750,000) turnover per year are completely exempt from corporation tax. This tax exemption also applies if the profit exceeds AED 375,000 (approx. € 94,000) per year.
Income & capital gains tax in Dubai
In Dubai and the United Arab Emirates there are No income tax or ancillary labour costs. This means that employers only have to cover the costs of their employees' residence permits.
Capital gains such as interest, share gains, dividends, gains from property sales, rental income, gains from investments in cryptocurrencies, as well as profit distributions from foreign companies are subject to tax in the United Arab Emirates. no taxation.
Since the introduction of corporate income tax in June 2023, many entrepreneurs & self-employed persons who exceed the tax-free allowance of AED 375,000 (approx. EUR 94,000) per year have taken advantage of the tax exemption on personal income. 100% of salaries can be deducted from company tax. This gives managing partners the opportunity to receive a salary as a director of their own company in order to reduce their tax burden.
Inheritance & Gift Tax in Dubai
There is no inheritance tax or gift tax in Dubai and the United Arab Emirates. However, if the donee or heir is resident in a country that levies inheritance or gift tax, the tax must be paid in the beneficiary's country of residence.
Real estate transfer tax in Dubai
The transfer tax for land & property in Dubai is 4% and is normally paid by the buyer to the Dubai Land Department (DLD).
The property transfer tax in the United Arab Emirates varies from emirate to emirate. While in Dubai & Ras Al Khaimah the property transfer tax is 4%, in Abu Dhabi, Sharjah, Umm Al Quwain the property transfer tax is 2%. In Ajman, the property transfer tax is 2% for locals and 3% for foreigners.
Conclusion
Dubai offers a highly favourable tax environment for international investors, entrepreneurs, the self-employed and skilled professionals combined with an excellent quality of life. While there is no personal income tax & capital gains tax and only a low corporate tax of 9% on high profits, the value added tax and real estate transfer tax provide revenue for the country. For many entrepreneurs & the self-employed, Dubai and the United Arab Emirates remain a paradise that offers various opportunities to utilise the already lax tax laws to lead a completely tax-free life.
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