Taxation System in UAE
Free zone companies Corporate Tax in UAE
For the companies which are located in free zone in UAE (offshore and onshore) are exempted from income tax, corporate tax and VAT.
Tax Resident Company
In a way companies which are incorporated in UAE are deemed as resident, provided:
(1) the whole of the company’s shares are constructively possessed by the citizen of UAE; or
(2) all or significantly all of the company’s revenue is obtained by the company from the business which is active apart from an investment business in the UAE; and
(3) all or considerably all of the worth of the company’s assets is payable to property used in that trade or business.
Corporate Income Tax
There are no taxes on the income from the companies in UAE, except for the exploration of oil and gas production companies and for branches of foreign banks. The tax rate for the foreign banks are at the agreed rates with the ruler of the Emirate, in which the business is functioning, in general, it will be at a flat rate of 20%. And for the gas and oil exploration and production companies are taxed at continuous rates of up to 50%/55% for Dubai/Abu Dhabi.
| UAE Quick Tax Facts for Companies
|Corporate income tax rate||0%|
|Branch tax rate||0%|
|Capital gains tax rate||0%|
|Basis of taxation for residents||Worldwide|
|Abroad Participation Exemption||Yes|
|Double taxation relief||Yes|
|Tax consolidation||No, but group loss relief may be available|
|Transfer pricing rules||No|
|Thin capitalization rules||No|
|Controlled foreign company rules||No|
|− Branch remittance tax||0%|
|Capital tax||0.6% on authorized share capital/issue of share|
|Real estate transfer tax||4% Dubai and Abu Dhabi 2%|
|VAT||5% (standard rate)|
For the transfer of real property, a transfer charge is imposed, which differs on the location of the property in Emirate. The tax rates are 4% and 2% for the property situated in the Emirates of Dubai and Abu Dhabi.
Treaties on tax
Around 70 income tax treaties are completed by the UAE.
Wage Tax/Social security Contributions
There are no social security taxes on non native employees in UAE. On the other hand, in UAE labour laws, the employer is mandatorily accumulate approximately 21 days of “basic wage” each year and reimburse to the employee on conclusion of a minimum of one year of Employment. Only for the GCC nationals social security donations are payable. The UAE national employees are entitled for 12.5% and 5% of employer and employee pension contributions respectively, of the approved contractual remuneration as per the employment bond.
Value Added Tax
The introduction of the VAT is recently announced by the UAE Ministry of Finance for taxable transactions. The VAT system is likely to be initiated at a low rate (potentially 5%) and commence from January 1 2018 on extensive base of varied goods and services with few partial industry exceptions.
New Legislation of VAT in UAE
The Ministry of Finance of UAE will formally put into practice VAT at the rate of 5% from January 1 2018, with few partial exceptions on necessary food items, education, and healthcare. Nevertheless, few policy announcements are made from time to time, as UAE plans for the latest VAT system.
These are the conditions of a company in UAE to be considered as UAE-resident Company:
- The formation was done in UAE;
- The central management and administration of the company is in UAE even though it was incorporated in other jurisdiction;
- Although the company was formed in other administration or even its central management is in another territory, the business should be carried out in the UAE and the voting powers should be with the resident UAE shareholder.
In the UAE, there are no corporate or capital gains tax on international sourced income. The taxes are imposed only on the companies which deal in oil, gas, and petrochemicals;
For all trading companies, a compulsory 5% tax is applicable on imports to mainland UAE, regardless of their business. For the companies in free zone the import duty is exempted on the goods coming into the same.
The companies which are UAE-resident should file tax returns with the appropriate authorities with the directors and shareholders information. The freely available information will be only the director’s information.
Accounting, Filing and Auditing Requirements
It is not mandatory to file audited accounts with the authorities for the company set up in free zones; the financial position of the company should be reflected by the financial statements prepared by the same.