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Taxes in the UAE

Taxes in the UAE. Peculiarities.
IT, UAE, Taxes, Company registration

 

The UAE is globally known for its tax system, the minimum tax burden on individuals and legal entities. At the same time, this jurisdiction is absolutely legal and quite prestigious for doing business, which is why IT companies are increasingly choosing the UAE in the last few years.

 

Earlier, we wrote an article about the peculiarities of the UAE for the registration of a company. Today we offer a more detailed look at the tax system of the country.

 

Corporate taxes in the UAE

 

The UAE is a constitutional federation, but there are no corporate taxes at the federal level. Instead, each emirate establishes them independently, which means that before registering a company, you need to familiarize yourself in detail with the terms of each.

 

According to the tax decrees, corporate tax is paid at a progressive rate of up to 55%.

 

However, only foreign oil companies and branches of foreign banks are actually taxed at the rate of 20%. All other businesses are subject to a 0% rate.

 

Besides, the majority of the free economic zones offer tax vacations up to 25 years with the right of prolongation. Given this situation, there is no obligation for business entities to submit corporate tax returns to the supervisory authorities of the UAE.

 

Taxes for work in the UAE

 

The UAE has no personal income tax, so a company is not a tax agent for its employees.

 

However, there is a social security regime in the country, directly for the citizens of the Emirates and the Gulf Cooperation Council. At the same time, workers covered by social security must be qualified (with appropriate education).

 

The rate of tax is 17.5% of the employee’s gross* earnings (however, this rate can be higher depending on the emirate).

 

The employee pays 5% of this amount, and the employer — the remaining 12.5% and is responsible for its administration (withholding and payment to the national budget).

Withholding tax in the UAE

Let’s look at when the Withholding Tax arises on dividends/interest/royalties.

 

Example

 

You are a performer, a sole proprietorship from Ukraine, and you provide services to foreign companies.

 

In most countries you cooperate with, the rates of this tax can vary up to 30%, but cooperating with the UAE, you will not pay it because in the UAE, Withholding tax is not applied.

 

However, the UAE has several double taxation treaties, so you need to check the tax rates in the country of residence of the recipient of passive income.

 

VAT in the UAE

 

As of 2018, the UAE has introduced a 5% value-added tax. This rate applies to almost all goods and services, but there is an exception in the form of a reduced 0% or exemption from VAT, for:

 

  • Goods/services exported outside of Gulf Cooperation Council member states, etc.

 

The country’s legislation sets thresholds for voluntary registration (about 45 thousand EUR) and compulsory registration (about 90 thousand EUR) of resident companies for VAT purposes.

Tax residency UAE

With taxes, everything is clear — your IT company is nothing to worry about. But what about the tax residency?

 

UAE tax residency can be obtained by individuals of any nationality with an existing Emirates ID (a person’s ID card whose validity period = duration of the visa) and a legal entity that is established, managed, and controlled from the Emirates. Thanks to the UAE tax residency status, you can come to the country every 180 days, open bank accounts, rent accommodation for personal and business purposes use the tax system, etc.

 

To avoid double taxation, the Federal Tax Authority issues a Tax Certificate — a certificate giving the right not to pay taxes in the country of residence, if the UAE and this state have signed an agreement on avoidance of double taxation (the Emirates have signed about 90 treaties, including from Ukraine). But it should be understood that obtaining the UAE resident status does not automatically cancel the resident status of the country of origin in terms of the country of citizenship. Therefore, for the Ukrainian tax authorities Tax Certificate is not a hundred percent basis for not paying taxes. It is necessary to prove that your center of vital interests is located in the UAE.

 

So, as a result, we recommend taking a closer look at the UAE as a relevant and profitable option for doing business, especially considering that the UAE has a DIC — an IT ecosystem that acts as a community for IT businesses to thrive. By the way, there’s informative content about DIC via this link.

 

Our team is happy to help you understand the tax specifics and process of registering a company in the UAE. Your consultation is just one step away — send us a request via the form or leave a message on Telegram/Viber.

 

*Gross wages are wages that include all mandatory contributions paid by the employer from the earnings

 

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Withholding tax. What is it and who pays it?

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