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Dubai Taxes
Dubai is known for its higher standards of life all over the world. One of the reasons making it a perfect destination for expatriates, tourists, and investors is that UAE is a tax-free nation. That is evident because there are no income taxes on income generated in Dubai. There are also no sales taxes on most of the goods and services.
However, it is known that no economy can survive without taxes, and this means that it might be a mere myth that Dubai doesn’t levy taxes on its people. If Dubai offers a high quality of life, it only means that certain incomes finance most incentives. Could taxation be one of them?
Does Dubai Have Taxes?
There are types of hidden taxes charged in Dubai that should be disclosed.
Income tax
You could be surprised that income tax is the leading source of tax in Dubai. While Dubai is known for not levying taxes on its people, not everyone is relieved from tax. Note that not all businesses are taxed, but only the listed prominent ones are subjected to taxation.
For instance, the oil industry provides a great share of its revenue to the government through taxes. The taxation rate is at 55 percent, which is a huge cost because Dubai’s economy relies mostly on oil businesses.
Dubai also charges a 20 percent tax on international banks operating in the country. While it is less than the rate of oil companies, Dubai’s government earns a lot of revenue from this taxation. It may sound unfair, but Dubai only taxes specific sectors, which contributes high incomes to the government while exempting others.
Entertainment taxes
Dubai is big and prominent when it comes to entertainment. However, the fun hub is not known for highly taxing its entertainment sector. It only charges a 10% rate on every restaurant in the emirates from their overall bill. This tax is referred to as the service charge. This shows that ‘no tax in Dubai’ is a myth as far as the entertainment industry is concerned — a service charge is indeed a form of tax.
Hotels offering accommodation are not exempted from this charge as well. The locals may not feel the pinch of this taxation as much as it is felt by the tourists who usually pay highly for these services. That said, hidden taxation is also levied on theaters, parks, and other leisure expenses.
Import duties taxes
Dubai is an island that relies on imports for its products except for oil — they produce almost nothing in the city. While some imports are free from taxation, others, especially those against Islamic law, are highly taxed. These include tobacco, alcohol, ammunition, and firearms. The import duties for these products are set to 50% and 30% on sale.
In Dubai, tobacco products and cigarettes are highly taxed, being subjected to 100% customs duties. The taxation structure of Dubai is mostly in respect to Islamic laws. They set these policies to ensure most people cannot afford the things against the Islamic rules rather than abolishing these items altogether.
Taxes on utilization
The government of Dubai has various branches, and each levies tax depending on the services provided. Whenever a utility bill is produced, a council tax gets levied. For instance, Dubai levies unwarranted tolls on the roads mostly used by motorists, and whenever a user pays for electricity, a tax amount goes to the government.
Did you know that parking fee are quite high in Dubai? It is one of the reasons why most people prefer public transport instead of using their vehicles. The government owns parking, and this fee you pay qualifies as a utility tax on users.
Taxes from Ex-pats
Dubai has a huge population of ex-pats. While they never get a direct tax on the salaries earned, they pay the government for the services rendered. For instance, they pay 100 dirhams per year to renew their national ID card. With the ID, you can live, work and earn in the United Arab Emirates (UAE). Other hidden charges on ex-pats and tourists include the visa processing fees.
Saying that Dubai is tax-free doesn’t make sense anymore considering this list of hidden taxes. Investors are warning the government about adding more taxes since it might adversely affect its economy. However, the warnings may not have been effective since the government announced a possibility of a new federal corporate tax for the first time in Dubai.
All businesses with a taxable income of 375,000 AED or more will pay a statutory tax of 9 percent on the adjusted net profit starting from June 2023.
Why does Dubai have no tax?
The United Arab Emirate of Dubai is commonly known as a tax haven. This means it doesn’t levy tax on incorporations registered in the jurisdiction but does not have any business there. The profits, interests, dividends, and any income earned outside the country will not be taxed in Dubai.
While it is true that there is no income taxation, this might not always be the case. The Vice President and Prime Minister of UAE Sheikh Mohammed Bin Rashid stated that “His emirate would never levy income tax as a way to hold the deficit.” This means that it is not likely to levy taxes on individual incomes in Dubai. Still, if you earn income in Dubai and reside elsewhere, you may be subjected to taxation.
If you move permanently to live and work in Dubai or you become a non-resident because of tax purposes in your native country, then you are better off here. You can earn a 100% salary in Dubai and be free from income taxation. As for businesses, the government wants to allow them to grow without levying hefty taxes. This will still be the case even with the introduction of the 9 percent corporate tax in 2023. Small businesses earning less than 375,000 AED will be exempted from tax.
Does Dubai have an income tax?
There is a zero income tax policy in Dubai. This might not change in the coming future for individuals, but it could be otherwise for businesses. VAT is levied nationwide, while Dubai acquires benefits from the DTTs signed by the UAE. The tax will never be levied on an individual basis.
Dubai citizens enjoy a free rental income, no stamp duties, no tax capital gains, or even inheritance. Earning a possibility of 100% free taxation is possible as long as you reside in the emirates and have no duties to other states. If you want to fully understand your tax responsibilities, it is always good to refer to a financial consultant.
Does Dubai have property taxes?
The city does not collect a yearly property tax or inheritance tax. According to a certain report by Santander bank, “there is no special tax regime for expatriates in Dubai.” That is supposed to mean that ex-pats in Dubai benefit from the area’s policy of not subjecting taxes to individuals.
The report also says that “people who have settled in Dubai are literally UAE residents and may receive a UAE Tax Residency Certificate if they prove that they have been physically present in UAE for more than 183 days within one year.
There is a one-time fee of a 4% tax rate on property transfer from one person to another. The buyer is the one who foots the bills, but in normal circumstances, the fee should be divided between the seller and buyer.
While the 4 percent fee is the only standing tax, for now, homeowners and tenants may pay a municipality tax equivalent to a 5 percent rate of their annual rental incomes in the coming future. According to a certain government website, this income will enable funding of local services.
Does Dubai have sales tax?
There was no sales tax until January 2018, when UAE introduced Value Added Tax. End consumers have to pay a 5 percent tax while buying goods and services.
The total price of goods and services within Dubai depends on the sales tax subjected by the UAE. Shopping might be expensive, but the tax rates are low.
There are items excluded from sales tax, for example, those related to health facilitation, education, and other essential services. Other items such as home appliances and electronics are considered non-essential and are set to lower tax rates.
Wrapping It Up
As a tax-free living city, Dubai has been attractive for skilled ex-pats, tourists, and investors all over the world. The thought of living and working in a country with no form of taxation is quite appealing to individuals who want to settle in Dubai and grow their wealth.
However, you might still end up paying a few charges when receiving most services, and while it is not termed as tax, it is still a cost channelled to the government. Is Dubai a free-tax country? The answer to this question should not be exactly a yes, —after all, more changes are underway.
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