Taxation in the United Arab Emirates

Last updated

The United Arab Emirates is a federation of seven Emirates, with autonomous federal and local governments. The UAE has historically been a low-tax jurisdiction. [1] The federal government and local governments are entitled to levy taxes on citizens and companies. The federal government currently levies a value added tax, corporate income tax, and excise taxes. Some emirates levy property, transfer, excise and tourism taxes. Some emirates also charge corporate taxes on oil companies and foreign banks.

Contents

The UAE federal tax system is administered by the Federal Tax Authority (FTA), which was founded ahead of the 2018 implementation of a federal value added tax (VAT). The current standard VAT rate in the country is 5%. [2] [3] In January 2022, the UAE Ministry of Finance announced the implementation of a federal corporate tax starting June 2023. [4] The standard rate of corporate tax is 9%, some exempt businesses and those with net annual profits under AED375,000 (US$102,100) qualify for a rate of 0%, and that fall under the criteria of the global minimum corporate tax rate agreement are charged a corporate tax rate of 15%. [5] Free zone businesses can get exempt from corporate tax as long as they do not do business with the UAE mainland and follow other UAE guidelines. [6] The federal government also levies excise taxes on alcohol, energy drinks, vaping liquids and devices, and cigarettes. [7] [8]

History

Since the discovery of oil in the UAE in the mid-1960s, the UAE federal and local governments had no incentive to levy direct taxes. Local governments received royalties from their emirate-owned oil companies, which local governments used to fund the federal government. Since then, the UAE is working to diversify its economy and government revenue away from oil and other hydrocarbons; with taxes being a major source for diversifying government-revenue sources. [9]

Value added tax (VAT)

Since 1 January 2018, the UAE has a federal value added tax. The standard VAT rate is 5%, some items qualify for a rate 0%, while certain items and services are exempt from VAT. VAT registration is mandatory for businesses with annual taxable supplies above the mandatory registration threshold (currently AED375,000), and voluntary for businesses with annual taxable supplies above the voluntary registration threshold (currently AED187,500). The Federal Tax Authority (FTA) is responsible for collecting VAT from businesses and conducting audits. [6]

Registration criteria

A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED375,000 (US$102,100). Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports or expenses are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED187,500 (US$51,050). This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT. [10]

De-registration criteria

If the annual turnover in 12 consecutive months is less than the voluntary registration threshold, the company or person may apply for de-registration in 20 days. Failing to submit de-registration application lead to a fine of up to AED10,000 (US$2720). [11]

Zero-rated items

VAT will be charged at 0% in respect of the following main categories of supplies: [12]

Exemptions

The following categories of supplies will be exempt from VAT: [13]

VAT audit

According to the federal law, it's necessary for the FTA to conduct regular VAT audits to ascertain the compliance of various businesses to the tax laws. [14] These audits are often conducted at the workplace or at the other place of business of the involved party, as per the selection of the FTA; the person/business should be given a minimum of 5 days notice.

Procedures

The involved party/business/person can file their tax returns on the FTA portal as per the schedule.

The FTA authorities can check the returns and alternative details. There should not be a selected reason for the FTA to conduct an audit of a business/taxpayer. They will conduct it for any reason or whenever they are required.

A notice is going to be issued to the involved party, a minimum of 5 days before the regular audit date. It will contain details, like the audit schedule, place, concerned parties, reason (if something particular), etc.

The auditor/s and also the taxpayer can meet at the scheduled place at the scheduled time and the process can begin. The auditor might ask for business records, in original and/or copies, and take samples of products and alternative assets as obtainable at the place at the time.

Note: The audited party has the right to ask for the credentials, like professional identification cards, from the tax auditors so as to see their authority.

The tax audit is to be conducted during the official FTA operating hours, unless the Director-General decides to conduct the audit of a business outside regular hours, in an exceptional case.

The taxpayer or the other person subject to a tax audit, in conjunction with his legal representatives and tax agents, are advised to participate and help the auditors performing their task.

If something suspicious is found within the results of the audit which may impact the tax return, the authority might order a re-audit for more analysis.

The audited person has the right to ask for the notification copy and connected documents and be present throughout the auditing procedures that are conducted outside of the official places.

In March 2021, FTA said that influencers on social media in the UAE or any users using online promotional activities should register for VAT and pay taxes if the value of the services they provide is more than AED375,000 in a 12-month period. [15] [16]

VAT refunds for tourists

Foreign tourists visiting the UAE are entitled to VAT refunds for purchases of items being exported with the traveller on their departure. The refund only applied to items that have not been used in the UAE. The minimum receipt requirement for VAT refunds is AED250 (US$68), and the purchase needs to be made within 90 days of departure. [17]

Corporate tax

Since June 2023, the UAE has a federal corporate tax. The standard rate for corporate tax is 9%. Some businesses qualify for a rate of 0% while companies that fall under the criteria of the global minimum corporate tax rate agreement are charged a corporate tax rate of 15%. [5] Free zone businesses can get exempt from federal corporate tax as long as they do not do business with the UAE mainland. [6] The Federal Tax Authority is responsible for collecting federal corporate taxes and conducting audits. All businesses in the UAE, including exempt, free zone and zero-rate businesses are required to register for federal corporate taxes. [18] Some emirates, including Dubai and Abu Dhabi charge a 20% flat corporate tax on the income of foreign banks based within their emirates. [19]

Income Requirements

As per the Ministry of Finance, Corporate Tax Rates [20] are:

Exemptions

The following institutions are exempt from federal corporate income taxes: [21]

  1. Government entities;
  2. Government controlled entities;
  3. Persons engaged in an extractive businesses;
  4. Persons engaged in a non-extractive natural resource businesses;
  5. Qualifying public benefit entities;
  6. Qualifying investment funds;
  7. Public pension or social security funds, or a private pension or social security funds that is subject to regulatory oversight of the competent authority in the state;
  8. Juridical persons incorporated in the state that are wholly owned and controlled by certain exempt persons; and
  9. Any other persons as may be determined in a decision issued by the cabinet at the suggestion of the minister.

Free zones

Free zone-based businesses are exempt from federal corporate taxes if they conduct no business with the UAE mainland, if not, the free zone business is required to pay federal corporate taxes on the income derived from the UAE mainland. [21]

Excise Taxes

The UAE levies excise taxes on certain products, the excise tax rates are:

Some emirates also charge higher taxes on the sale of alcohol. Abu Dhabi charges a 30% sales tax on alcohol, Dubai ended the practice in January 2023. [23] [24]

Customs duties

The UAE charges a flat 5% customs duty on the value of goods, freight, and insurance (CIF) for most goods. The customs duty rate is 50% on CIF of alcohol, and 100% on CIF of cigarettes. VAT is also charged at the standard rate for the imported items.

The UAE charges some anti-dumping duties on some products, with some duties as high as 106% for some ceramic imports, including those imported from the GCC Customs Union. [25] [26]

See also

Related Research Articles

<span class="mw-page-title-main">Taxation in the United Kingdom</span> United Kingdom tax codes

In the United Kingdom, taxation may involve payments to at least three different levels of government: central government, devolved governments and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty. Local government revenues come primarily from grants from central government funds, business rates in England, Council Tax and increasingly from fees and charges such as those for on-street parking. In the fiscal year 2014–15, total government revenue was forecast to be £648 billion, or 37.7 per cent of GDP, with net taxes and National Insurance contributions standing at £606 billion.

<span class="mw-page-title-main">Finance Act</span> Fiscal legislation enacted by the UK Parliament

A Finance Act is the headline fiscal (budgetary) legislation enacted by the UK Parliament, containing multiple provisions as to taxes, duties, exemptions and reliefs at least once per year, and in particular setting out the principal tax rates for each fiscal year.

<span class="mw-page-title-main">Taxation in the Republic of Ireland</span> Irish tax code

Taxation in Ireland in 2017 came from Personal Income taxes, and Consumption taxes, being VAT and Excise and Customs duties. Corporation taxes represents most of the balance, but Ireland's Corporate Tax System (CT) is a central part of Ireland's economic model. Ireland summarises its taxation policy using the OECD's Hierarchy of Taxes pyramid, which emphasises high corporate tax rates as the most harmful types of taxes where economic growth is the objective. The balance of Ireland's taxes are Property taxes and Capital taxes.

Income taxes are the most significant form of taxation in Australia, and collected by the federal government through the Australian Taxation Office. Australian GST revenue is collected by the Federal government, and then paid to the states under a distribution formula determined by the Commonwealth Grants Commission.

The Russian Tax Code is the primary tax law for the Russian Federation. The Code was created, adopted and implemented in three stages.

The Tanzania Revenue Authority (TRA) is the government agency of Tanzania, charged with the responsibility of managing the assessment, collection and accounting of all central government revenue in Tanzania.

This is a list of the maximum potential tax rates around Europe for certain income brackets. It is focused on three types of taxes: corporate, individual, and value added taxes (VAT). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.

<span class="mw-page-title-main">European Union value added tax</span> EU-wide goods and services tax policy

The European Union value-added tax is a value added tax on goods and services within the European Union (EU). The EU's institutions do not collect the tax, but EU member states are each required to adopt in national legislation a value added tax that complies with the EU VAT code. Different rates of VAT apply in different EU member states, ranging from 17% in Luxembourg to 27% in Hungary. The total VAT collected by member states is used as part of the calculation to determine what each state contributes to the EU's budget.

Taxation in Denmark consists of a comprehensive system of direct and indirect taxes. Ever since the income tax was introduced in Denmark via a fundamental tax reform in 1903, it has been a fundamental pillar in the Danish tax system. Today various personal and corporate income taxes yield around two thirds of the total Danish tax revenues, indirect taxes being responsible for the last third. The state personal income tax is a progressive tax while the municipal income tax is a proportional tax above a certain income level.

The tax legislation of Azerbaijan is comprised by the Constitution of Azerbaijan Republic, the Tax Code and legal standards which are adopted herewith. The taxes levied in Azerbaijan can be generally broken down into 3 main types: state taxes, taxes of autonomy republic and local (municipal) taxes. State taxes include the following: personal income tax, corporate tax, value added tax, excise tax, property tax, land tax, road tax, mineral royalty tax and simplified tax. Taxes of autonomy republic are the same as state taxes but levied in Nakhichevan Autonomous Republic.

Taxation in Finland is mainly carried out through the Finnish Tax Administration, an agency of the Ministry of Finance. Finnish Customs and the Finnish Transport and Communications Agency Traficom, also collect taxes. Taxes collected are distributed to the Government, municipalities, church, and the Social Insurance Institution, Kela.

Taxation in Norway is levied by the central government, the county municipality and the municipality. In 2012 the total tax revenue was 42.2% of the gross domestic product (GDP). Many direct and indirect taxes exist. The most important taxes – in terms of revenue – are VAT, income tax in the petroleum sector, employers' social security contributions and tax on "ordinary income" for persons. Most direct taxes are collected by the Norwegian Tax Administration and most indirect taxes are collected by the Norwegian Customs and Excise Authorities.

Taxes in Germany are levied by the federal government, the states (Länder) as well as the municipalities (Städte/Gemeinden). Many direct and indirect taxes exist in Germany; income tax and VAT are the most significant.

Taxation in Estonia consists of state and local taxes. A relatively high proportion of government revenue comes from consumption taxes whilst revenue from capital taxes is one of the lowest in the European Union.

Taxes in Bulgaria are collected on both state and local levels. The most important taxes are collected on state level, these taxes include income tax, social security, corporate taxes and value added tax. On the local level, property taxes as well as various fees are collected. All income earned in Bulgaria is taxed on a flat rate of 10%. Employment income earned in Bulgaria is also subject to various social security insurance contributions. In total the employee pays 12.9% and the employer contributes what corresponds to 17.9%. Corporate income tax is also a flat 10%. Value-Added Tax applies at a flat rate of 20% on virtually all goods and services. A lower rate of 9% applies on only hotel services.

The tax system of the Czech Republic is similar in its main features to the systems of developed and especially European countries.

Taxes in Lithuania are levied by the central and the local governments. Most important revenue sources include the value added tax, personal income tax, excise tax and corporate income tax, which are all applied on the central level. In addition, social security contributions are collected in a social security fund, outside the national budget. Taxes in Lithuania are administered by the State Tax Inspectorate, the Customs Department and the State Social Insurance Fund Board. In 2019, the total government revenue in Lithuania was 30.3% of GDP.

Taxation in Malta is levied by the State and it is administered by the Commissioner for Tax and Customs. The total tax revenues in 2014 amounted to €2.747 Billion, which represents 34.6% of the Maltese GDP. The main sources of tax revenue were value-added tax, income tax, and social security contributions.

<span class="mw-page-title-main">Value-added tax</span> Form of consumption tax

A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. If the ultimate consumer is a business that collects and pays to the government VAT on its products or services, it can reclaim the tax paid. It is similar to, and is often compared with, a sales tax. VAT is an indirect tax because the person who ultimately bears the burden of the tax is not necessarily the same person as the one who pays the tax to the tax authorities.

The organization responsible for tax policy in Ukraine is the State Fiscal Service, operating under the Ministry of Finance of Ukraine. Taxation is legally regulated by the Taxation Code of Ukraine. The calendar year serves as a fiscal year in Ukraine. The most important sources of tax revenue in Ukraine are unified social security contributions, value added tax, individual income tax. In 2017 taxes collected formed 23% of GDP at ₴969.654 billion.

References

  1. ↑ "A new corporate tax regime in the UAE -Trowers & Hamlins". www.trowers.com. Retrieved 2023-06-17.
  2. ↑ "VAT in UAE 2018" . Retrieved 12 September 2017.
  3. ↑ "VAT". www.mof.gov.ae. Retrieved 2017-09-14.
  4. ↑ "UAE to introduce corporate tax". thearabianpost.com. 31 January 2022. Retrieved 2023-07-20.
  5. 1 2 "UAE to introduce 9% corporate tax on business profits from June 1, 2023". gulfnews.com. 31 January 2022. Archived from the original on 2022-01-31. Retrieved 2022-02-01.
  6. 1 2 3 van Doremalen, Ton. "UAE introduces federal corporate income tax from June 2023". DLA PIPER. Archived from the original on 1 February 2022. Retrieved 1 February 2022.
  7. ↑ "UAE's expanded 'sin tax' comes in with sugary drinks, vapes and regular cigarettes rising in price". December 2019.
  8. ↑ "Excise tax - the Official Portal of the UAE Government".
  9. ↑ "VAT". www.mof.gov.ae. Retrieved 2017-09-14.
  10. ↑ "New UAE VAT And Tax Procedures Laws - Tax - United Arab Emirates". www.mondaq.com. Retrieved 2017-09-14.
  11. ↑ VAT De-registration in UAE
  12. ↑ "New VAT law: housing exempt and education at 0%". The National. Retrieved 2017-09-14.
  13. ↑ Fichte; Heaver, Co-Irina; Corrie, Priyasha (11 September 2017). "Summary of the new VAT Law in the UAE | Lexology" . Retrieved 2017-09-14.
  14. ↑ "Worried About VAT Audit? Here's Everything You Need To Know" . Retrieved 2019-03-19.
  15. ↑ "VAT Consultant in Abu Dhabi".
  16. ↑ "Social media influencers must pay VAT: UAE tax authority". Arab News. 2021-03-08. Retrieved 2021-03-08.
  17. ↑ "Tax free shopping in Dubai | Visit Dubai". www.visitdubai.com. Retrieved 2023-06-17.
  18. ↑ "UAE Corporate tax: Understanding who is Taxable, Exempt and Qualifying Free Zone Person". www.tmf-group.com. Retrieved 2023-06-17.
  19. ↑ "Tax on corporate lending and bond issues in the United Arab Emirates: overview". Practical Law. Retrieved 2023-06-17.
  20. ↑ "Corporate tax (CT) | the Official Portal of the UAE Government".
  21. 1 2 PricewaterhouseCoopers. "UAE Federal Corporate Tax". PwC. Retrieved 2023-06-17.
  22. ↑ "Excise Tax in UAE : All You Need to Know". Farahat Offices & Co - Top Audit Firms in Dubai. 2023-04-27. Retrieved 2023-06-17.
  23. ↑ Duncan, Gillian (2018-06-12). "Abu Dhabi to introduce 30 per cent alcohol sales tax". The National. Retrieved 2023-06-17.
  24. ↑ Nereim, Vivian (2023-01-02). "Dubai Suspends Alcohol Tax as Regional Competition Heats Up". The New York Times. ISSN   0362-4331 . Retrieved 2023-06-17.
  25. ↑ Zabadneh, Mazen. "Customs Notice No. ( 09 / 2020) on Imposing a definitive anti-dumping duty on GCC imports of uncoated paper and paperboard (fluting or test liner) originating in Spain and Poland". www.dubaitrade.ae. Retrieved 2023-06-17.
  26. ↑ "UAE: Anti-dumping duties, ceramic pavers and tiles - KPMG United States". KPMG. 2021-07-12. Retrieved 2023-06-17.

UAE corporate tax A comprehensive guide

Tax consultants in Dubai

Audit firms in UAE


This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.