Introduction To UAE Corporate Tax 2023 part 2 – Part one is here.
Types of Tax in the United Arab Emirates
Taxes are a necessary part of living in any country. To ensure that everyone contributes towards the growth, well-being, and success of their nation, tax is charged on almost everything you earn, own or buy. However, many countries have different rates for different forms of taxation.
The United Arab Emirates (UAE) uses federal and local taxes to fund the country’s spending needs. There are also taxes on residents and companies operating in the UAE, at both local and federal levels. Different names in certain countries may know taxes, but their purpose is essentially the same, regardless of their call.
Each tax has its unique way of applying charges to different sources of income or transactions, and each one has a dedicated department that regulates it. Below are the types of taxes in the UAE.
1. Tax on Incomes
All individuals and companies in the UAE pay tax at a rate of 20 percent, as well as a 3 percent municipality levy. Also, a fee of Dh3,000 applies to non-citizens who want a labor card. Moreover, expatriates with income above Dh21,000 and freehold property in their name must pay an annual tax of 1.5 percent on the home’s value.
2. Value Added Tax (VAT)
VAT is a type of indirect tax applied in the UAE on both goods and services with an additional percentage added on top of their original price. The rate for this form of taxation is 5 percent, although certain items have a zero percent rate, including basic foodstuffs, pharmaceuticals, and medical services.
3. Offshore Companies’ Income Tax
All UAE residents or citizens must declare any income obtained from offshore activities to their local authority immediately. This is because the country regards all money made outside its borders as taxable revenue, even if it is not brought into the country.
4. New Corporate Tax
Private companies are subject to a flat rate of 9% for taxable income exceeding 375,000 UAE dirhams ($102,000) and zero for taxable income up to that amount to support small businesses and startups. This tax only applies to UAE-based firms, as foreign affiliates are charged by their respective federal authorities in their home countries.
5. Tax on Property
The UAE government determines who is liable to pay taxes for properties based on nationality or residency. Non-residents and foreign nationals do not have to pay tax for these homes and only register with the municipality. However, if a person is an Emirati citizen and owns more than one property, they must pay 2 percent of the total value of the homes as tax.
6. Tax on Wills and Inheritance
The government charges each person who inherits money, property, or other assets a 4 percent fee on all their new fortune. This applies to both individuals and companies that receive an inheritance from someone who has passed away, regardless of whether they live in the UAE or not.
7. Expat Levy
All companies in the UAE must pay a Dh10,000 fee per worker every year if they have over 100 employees on their staff roster. This means that most businesses will contribute at least Dh1 million in fees for each worker employed by them. However, there is no fee when an establishment has fewer than 100 employees.
8. Tax on Specific Goods and Services
Certain transactions are liable to tax in the UAE, including those that contribute towards congestion levels in the country. Items subject to this type of taxation include commercial buildings, car ownership, petrol prices, and tobacco products. Moreover, companies must pay 0.5 percent of their annual income as a license fee.
10 Laws You Should Know About UAE
If you are an expat living in UAE, you have likely heard of the laws here. However, some people may not know the following laws and rules.
The judicial system in UAE follows Sharia Law. The act, which is part of Islamic law, has been implemented since the formation of the UAE. It operates under an inquisitorial system and can be called into effect by any state agency or official. While it is true that certain aspects are not applicable to non-Muslims, they may still come into practice when the interests of Sharia Law are involved.
Drinking alcohol is prohibited throughout the UAE regardless of age, location, or nationality. If you are caught, it will be confiscated, and if you are an Indian or Bangladeshi national, you face deportation. You can still order alcoholic beverages in bars and restaurants, but you will not be served them. You can bring in alcohol for personal consumption, but you cannot take it outside the UAE (even within free zones).
Non-Muslim expats are not allowed to drive in the country, while Muslims who aren’t Emiratis are allowed to obtain a license that is valid only in Dubai. All expats living in the country must have a UAE-registered car with a valid UAE or GCC number plate.
If you are staying in the country on an employment visa, you must apply for residency as soon as it becomes available to you. If you enter the country without proper documentation, your residency will be illegal. You can obtain a six-month visa on arrival by filling out the proper forms and paying the fee at the airport.
Overtime Working Rules
Overtime is generally expected in UAE, but some rules govern it. The working hours are from 8 am to 2 pm (summertime) and from 8 am to 3 pm (winter time). The maximum working hours are 48 hours per week.
Excessive working hours and a ban on trade unions are the main issues surrounding labor problems in UAE. Although, there has been progressing as new legislation was introduced which gives employees more rights and better working conditions.
Free zones are a good place to do business in UAE as they have their laws and regulations. This allows them to have different rules from the rest of the country but remain under its federal government’s umbrella. To establish your business, you need to apply for a license from the free zone trade department and pay a fee (based on your business).
Entry and Residence Visa
There are two entry visas: a tourist visa and an employment visa. The latter can be obtained before entering the country through an agency, while the former is given to you by immigration on arrival (for free) after your booking is confirmed. You can also choose to enter as a transit passenger, which allows you to stay in the country without a visa.
Before entering into an employment contract, your prospective employer is required to obtain a permit for you from the Ministry of Labor. The necessary documents are based on the profession you are applying for. This also applies if you switch jobs or renew your current work permit.
Resolving a Dispute
As per the UAE constitution, the Federal Supreme Court is the highest court of appeal. It hears appeals regarding civil, commercial, and criminal cases. However, if you live within the Emirate of Abu Dhabi, Sharjah, or another two Emirates that have their courts (Dubai and Ras Al Khaimah), the case is heard in these courts.
Frequently Asked Questions about the United Arab Emirates
What is UAE corporate tax?
The United Arab Emirates (UAE) will introduce a federal corporate tax on company profits on June 1, 2023. However, it has kept the rate low at 9% to retain its appeal to businesses. You can refer to this platform for more information about the new tax rates.
Why did UAE launch corporate tax?
Of course, it’s for the country’s betterment! Moreover, UAE’s Finance Ministry said that it launched this corporate tax in line with worldwide efforts to combat tax evasion and meet issues posed by the global economy’s digitization, according to News International normal, and innovation.
What is the VAT rate in the United Arab Emirates?
In 2018, the UAE introduced a single 5% Value-Added Tax (VAT) rate across most goods and services. The country applies a 20% tax on international bank branches operating and a 55% tax on enterprises with emirate-level concessions agreements in the oil and gas sector.
What’s living like in the UAE?
There are seven Emirates located in the United Arab Emirates, each with its own unique culture. Some of their cultures are very similar, but others have different traditions and histories. For expatriates living in the UAE, it’s important to familiarize oneself with local customs before moving or traveling there.
Can expats be deported from the UAE?
In most cases, no! Expats typically sign a contract with their sponsors when they first arrive in the UAE, and it is written in this contract whether or not a person can be deported. Sometimes rather than being deported, an expatriate may have their visa denied instead, which prohibits them from entering the country again.
As an expat coming to the United Arab Emirates for the first time, it’s essential to know the new change. That’s why it’s always important to check this platform for recent updates on your destination country. With the new corporate tax set to commence in June 2023, prepare ahead to know how it works for your business. Refer to this guide for more updates.