The UAE is considered as a business friendly destination and one of the prime reasons for the same is the belief that “UAE is tax free”. However, contrary to popular belief, this statement is not completely true and some kind of taxes are levied in the country.
In this Article, we will explore the tax structure of UAE and the areas in which taxes are relaxed or applicable.
- Corporate Tax
The Emirates have their own laws regarding corporate taxes for companies operating within their respective territories, but in reality, taxes are levied only on foreign gas or oil producing companies. The branches of international banks are also subject to the corporate tax.
But, apart from the companies listed above, all other companies are not subject to the corporate tax. This benefit is applicable across all UAE Jurisdictions i.e., Onshore, Free Zone and Offshore. Further, there is no provision of withholding tax in the country, and the repatriation is 100% tax free.
The only form of corporate taxation that may be imposed is Value Added Tax (VAT). However, it is important to note that it is only applicable to those companies which provide goods and services to the customers residing in the UAE or GCC region. The goods and services provided internationally are not subject to this tax.
- Income Tax
The UAE federal government doesn’t impose any income tax on the individuals residing in the UAE. Therefore, it means that if you are living and working in the UAE, your income will be completely tax free.
For the purpose of income tax, it is also important to differentiate between physical residency and fiscal residency. Physical residency refers to the country wherein you are currently residing and having the strongest affiliation. A fiscal residency refers to the country in which you have a fiscal home and pay the taxes.
Having a fiscal home in a tax friendly jurisdiction can be really handy, and here the benefits of UAE comes into play as it offers large benefits of a tax free jurisdiction. For making UAE your fiscal home, it is important to get a residency certificate first. This certificate can be obtained either by being employed, setting up your own company, or investing in property in the UAE.
After becoming a resident, you need to demonstrate adequate “substance” in UAE in order to become a fiscal resident. The substance is a collection of financial evidence required by tax authorities as well as the financial institutions. Maintaining a proper account, a local phone number, a local mailing address and of course a place of accommodation, etc would make a strong case of substance for you.
After fulfilling the above criteria, you will be provided with a UAE Personal Tax Certificate, which is a testimony of the fact that UAE is your fiscal home.
Conclusion
In a nutshell, it can be stated that the UAE is free from corporate and personal taxes. Though some other forms of taxes may be applied like VAT, it still remains an exceedingly tax efficient jurisdiction. Further, If a person gets a UAE personal tax certificate, his tax liability mitigates to a very good extent