The federal government of the UAE has not promulgated any tax laws. Most of the individual Emirates have issued corporate tax decrees, but, in practice, taxes are only imposed on oil and gas producing companies at rates set forth in their government concession agreements, and on branches of foreign banks at rates set out in specific tax decrees or fixed in agreements with the Rulers of the Emirates in which the branches operate. The income tax decrees that have been enacted in each Emirate provide for tax to be imposed on the taxable income of all bodies corporate wherever incorporated, and their branches that carry on trade or business, at any time during the taxable year through a permanent establishment in the relevant Emirates. Bodies corporate are taxed if they carry on trade or business directly in the Emirate or indirectly through the agency of another body corporate.
TAXATION IN ABU DHABI
According to the Abu Dhabi income tax decree, all companies carrying on trade or business in Abu Dhabi are required to pay tax on their earnings. The rates of tax are on a sliding scale up to a maximum of 55%. In practice, however, only:
a) Oil and gas producing companies pay tax at rates specified in the relevant concession agreement. Oil companies also pay royalties on production;
b) Branches of foreign banks pay tax at a flat rate of 20% on annual profits. The taxable income of banks is calculated by reference to their audited financial statements.
The Abu Dhabi income tax decree of 1965 specifies that an organization that conducts trade or business in Abu Dhabi shall be subject to taxation as follows:
A “chargeable person“ means a body corporate wherever incorporated, or each and every branch thereof, carrying on trade or business at any type during an income tax year through a permanent establishment situated in the Emirate whether directly or through the agency of another body corporate, and not entitled under an agreement with the Ruler to an exemption from liability to income tax. Two or more such branches of a body corporate carrying on trade shall each be treated as separate chargeable persons. The fact that a body corporate has a secondary body corporate carrying on trade or business through a permanent establishment in the Emirate shall not in itself constitute that parent body corporate as a chargeable person.
“Carrying on trade or business“ means:
a) Selling goods or rights in such good in the Emirate;
b) Operating any manufacturing, industrial or commercial enterprise in the Emirate;
c) Letting any property located in the Emirate; or
d) Rendering services in the Emirate, excluding the mere purchasing of goods or rights in such goods in the Emirate.
A chargeable person in Abu Dhabi shall be charged taxes on a sliding scale as, except that the tax charged shall be reduced by the credit aggregate of oil dealt in for that fiscal year as long as the total of all reductions granted to all chargeable persons in that fiscal year shall not exceed the credit aggregate of oil dealt in for that fiscal year. Taxable income is computed after the deduction of all costs and expenses incurred by a chargeable person earning such income. Deductible costs and expenses include acquisition cost of goods, the expenses of operating the business, allowances for depreciation, obsolescence and exhaustion of both tangible and intangible assets, and losses sustained by the chargeable person in connection with the business.
Abu Dhabi has free zones, which offer tax and business incentives aimed at making Abu Dhabi a global business and commercial center. The incentives usually include tax holidays for a guaranteed period (most free zones offer a tax holiday of 50 years), 100% foreign ownership, no customs duty within the free zone, and “one-stop shop“ administrative services.
There are no withholding taxes in the UAE.
PERSONAL INCOME TAX
No personal taxation currently exists in the UAE.
There is no capital gains tax in the UAE. For taxpaying entities, capital gains are taxed as part of business profits.
Customs duties are very low, and there are many exemptions. They are generally levied at the rate of 5%. Goods imported and intended for re-export often benefit from customs duty as do manufacturers on the import of their machinery, raw materials, and spare parts used for industrial purposes.
VALUE ADDED TAX
There is no value added tax in the UAE at present.
The UAE does not impose social security taxes on expatriates. UAE-national employees contribute to retirement and pension funds in accordance with specific regulations.
MUNICIPAL TAX AND PROPERTY TAX
Municipal taxes are imposed on hotel services and cinema shows. Service charge percentages vary among the Emirates. A service charge of 5-10% is charged on food purchased in restaurants. Hotels charge a 10-15% service charge per night on room rates. These charges are usually included in the customer’s bill, which the municipality will collect from restaurants and hotels. Hotels also charge an additional 15% service charge on the services they provide. In most of the Emirates, property tax is payable by residential and commercial tenants by reference to the annual rent of residential property, generally at a rate of 5%, and for commercial property at a rate of 5-10% payable to the local Municipality.
REAL ESTATE SALE/PURCHASE FEE
A sale registration fee of 1% of the value of the sale is imposed on the seller, payable to the Abu Dhabi Land Department. A purchase registration fee of 1% of the value of the sale is payable by the buyer of the property. The rate can differ in other Emirates.
There are no exchange controls on the remittance of profits or repatriation of capital, and there are virtually no restrictions on foreign trade.
The UAE has entered into tax treaties with several countries, including Algeria, Armenia, Austria, Belarus, Belgium, Bulgaria, Canada, China, the Czech Republic, Egypt, Finland, France, Germany, India, Indonesia, Italy, Lebanon, Malaysia, Mauritius, Morocco, Mozambique, New Zealand, Pakistan, Poland, Romania, Singapore, South Korea, Spain, Sri Lanka, Syria, Tajikistan, Thailand, Turkey, Ukraine, and Yemen. Treaties have been concluded with Bosnia-Herzegovina, Jordan, Luxembourg, Malta, Mongolia, the Netherlands, Philippines, Seychelles, Sudan, Tunisia, and Uzbekistan; however, they have not formally entered into force.