Everything you need to know about taxes in the UAE
The UAE attracts people from across the globe for its lifestyle and favourable taxation policies. The high standards of living are backed by a robust economy. All consumers and companies operating in the region have to pay different taxes in the country. This handy UAE taxes guide covers the different taxes in the UAE that apply to goods and services, as well as the tax percentages consumers have to pay.
WHAT ARE THE DIFFERENT TAXES IN THE UAE?
Major infrastructure, public parks, markets and healthcare facilities are funded by the UAE Government. To provide greater conveniences to residents, the authorities decided to reduce the dependence of the country’s revenue stream on hydrocarbons and thus, implemented different taxes. These taxes also help regulate certain products that are harmful to society.
Let’s now look at the different taxes applicable in the UAE and answer the most frequently asked questions about these extra charges.
IS THERE INCOME TAX IN THE UAE?
One of the most frequently asked questions is whether there is any personal income tax in the UAE. Please note that the UAE does not charge direct income tax on individuals residing in the country.
VAT IN THE UAE
Value Added Tax, commonly known as VAT, is one of the most important taxes in the UAE for consumers. This indirect tax is payable for goods and services and is levied at each stage of the supply chain. This UAE tax was introduced on 1st January 2018.
VAT is usually borne by the end-users, with businesses generally collecting and accounting for VAT. Registered businesses collect VAT on behalf of the Federal Tax Authority (FTA), which is responsible for implementing VAT and other taxes in the UAE. They can then apply for refunds and rebates every quarter.
WHAT IS THE VAT PERCENTAGE IN THE UAE?
VAT in the UAE is charged at 5%.
WHAT IS THE VAT APPLICABLE ON?
Value Added Tax in the UAE applies to the supply of all goods and services, including food and beverage, commercial buildings, hotels and serviced accommodation, jewellery and electronic services.
However, certain items are zero-rated or exempt from VAT tax in the UAE. The list includes:
- Private and public school education
- Healthcare
- International transport of goods and passengers
- Sale or rent of residential buildings
- Activities by not-for-profit organisations
- Land
- Local public passenger transport
- Certain investment precious metals, amongst others
WHICH BUSINESSES HAVE TO REGISTER FOR VAT?
Businesses must register to collect VAT if their taxable imports and supplies exceed AED 375,000. However, companies whose taxable imports and supplies are below AED 375,000 but above AED 187,500 can choose to register for VAT if they wish.
VAT applies to tax-registered businesses in the mainland and free zones. However, free zones recognised as ‘designated zones’ are considered outside the UAE for VAT purposes. This means that the transfer of goods between designated zones is VAT exempted.
DO TOURISTS HAVE TO PAY VAT IN THE UAE?
Yes, tourists have to pay VAT when making purchases in the UAE. However, they can request refunds at their departure port*. For instance, travellers can request VAT refunds at the Dubai International Airport through self-service kiosks when departing the country.
*Presently, VAT refund for tourists in the UAE is only possible if they purchase products from retailers participating in the “Tax Refund for Tourists Scheme.”
EXCISE TAX IN THE UAE
Excise Tax is a type of indirect tax in the UAE that is levied on specific goods, including products that are harmful to people’s health or the environment. Authorities introduced the excise tax in the UAE in 2017; however, new excise tax rates were announced in December 2019. The end customer bears the cost of the excise tax.
Excise tax in the UAE is implemented to curb the consumption of harmful products and create a new revenue source to fund public services.
WHICH GOODS IS EXCISE TAX APPLICABLE TO?
Wonder ‘what items have excise tax in the UAE?’ Well, the excise tax applies to:
- Tobacco products
- Carbonated drinks (does not include sparkling water)
- Energy drinks
- Electronic smoking devices and tools (and liquids used in these devices)
- Sweetened drinks
WHICH GOODS ARE EXEMPTED FROM EXCISE TAX?
The list of products exempted from excise tax in the UAE includes:
- Ready-to-drink beverages (with at least 75% milk or milk substitutes)
- Baby food or baby formula
- Beverages for special dietary needs as recognised under Standard 654 of the GCC Standardization Organization
- Beverages consumed for medical uses as recognised under Standard 1366 of the GCC Standardization Organization
WHAT ARE THE EXCISE TAX RATES IN THE UAE?
The excise tax percentage in the UAE for eligible goods is as follows:
- 50% for carbonated drinks
- 100% for energy drinks
- 100% for tobacco products
- 100% on electronic smoking devices and tools (and on liquids used in these devices)
- 50% on products with added sugar/other sweeteners
CORPORATE TAX IN THE UAE
Currently, corporate tax only applies to specific industries or companies in the UAE such as oil companies and branches of foreign banks. Also, each emirate has its corporate tax rate.
However, from June 2023, a 9% new corporate tax in the UAE will be enforced on company profits. Businesses with profits up to AED 375,000 will not be taxed. Similarly, companies working on natural resources extraction will remain on the Emirate level corporate taxation.
TOURIST TAX IN THE UAE
Tourists in the country have to pay a special tax at restaurants, hotels, hotel apartments and resorts. These facilities may charge one or more of these taxes in the UAE:
- 10% on room rate
- 10% as service charge
- 10% as municipality fees
- City tax (which ranges between 6% – 10%)
- 6% as tourism fee
In 2014, the Tourism Dirham Fee in Dubai was introduced to be charged by hotels, hotel apartments, guest houses and holidays homes in the emirate. This Tourism Dirham Fee is charged per room per night and ranges between AED 7 to AED 20, depending on the hotel rating.
The Tourism Dirham Fee for different categories of hotels is as follows:
- Five-star hotel or resort: AED 20
- Four-star hotel or resort: AED 15
- Three-star and two-star hotel: AED 10
- One-star hotel: AED 7
The tourism fee is charged at 4% in Abu Dhabi. Daily charges in the UAE capital also include a municipality room fee, AED 15 per room per night.
FREQUENTLY ASKED QUESTIONS
I HAVE A SPECIFIC TAX-RELATED QUERY. WHO SHOULD I CONTACT?
If you want to know more about UAE taxes, contact the Federal Tax Authority (FTA). This government entity is responsible for implementing federal taxes such as VAT or excise tax. You can contact the FTA at 600-599-994.
I HAVE QUESTIONS ABOUT THE TOURISM DIRHAM. WHO DO I GET IN TOUCH WITH?
For more information on the Tourism Dirham in Dubai, contact the Dubai Tourism Authority at 600-555-559.
To learn more about the tourism and municipality fees in Abu Dhabi, contact the Department of Culture and Tourism at 800-555.
And that concludes our guide to the various taxes in the UAE. We hope this resource answers your questions about the present tax system in the UAE.
If you want to rent or buy a property in the UAE, check out which real estate transactions are exempted from VAT. Tourists leaving the country via the capital city can read more about VAT refunds at Abu Dhabi International Airport.
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