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Peculiarities of taxation of individuals in the UAE

Peculiarities of taxation of individuals in the UAE - Makebiz

The United Arab Emirates is becoming an increasingly attractive place to live and do business, and this is no coincidence. One of the key factors contributing to this is the taxation system, which offers significant benefits to individuals and entrepreneurs. 

In recent years, the Government of the Emirates has concluded 142 agreements with various countries aimed at eliminating double taxation. This creates the potential for a more transparent and stable environment, which in turn increases confidence in the region’s tax system. Let’s take a closer look at the main aspects of taxation of individuals in the UAE.

One of the most significant features of the region is the absence of certain types of customary taxes, for example: 

  • Income tax — this rule applies to both local citizens and residents, including foreign citizens. Due to this, many people choose Dubai as a place to work and live, as they have the opportunity to save most of their income.
  • Capital gains, which creates favorable conditions for investing in government securities and other financial instruments, allowing investors to earn income without additional obligations.
  • For real estate, which makes the purchase of housing even more attractive. However, it is worth noting that when buying a property, the buyer must pay a registration fee of 4% of the value of the property. This is the only property-related tax that needs to be considered.

Categories where tax obligations are provided for

For the owner of the property: 5% of the annual rental price for the residential sector and 10% for the commercial sector. This is important to consider when planning investment strategies in the rental sector.

Pension and social contributions apply only to citizens of the UAE and other GCC countries. For local residents, this is 12.5% of the salary for the employer and 5% for the employee. This creates additional obligations for local companies that hire workers from these categories.

Not so long ago, a 5% VAT was introduced in the Emirates. It applies to a large number of goods and services, but some categories, such as medical and educational services, are exempt from its payment. This makes the market more transparent and promotes economic development.

When staying in hotels, tourists pay a government fee (Tourism Dirhams), usually included in the final cost of accommodation. It is an important source of income for the state and is used to develop tourism infrastructure, improve the quality of service and support the international image of the country.

At the same time, foreign visitors have the opportunity to partially offset the costs by refunding VAT, which is 5%. The tax free system applies to purchases made by guests of the city, subject to a number of conditions.

It is important to keep in mind that a refund is only possible for items that have not been used in the country. The buyer must be over 18 years old, and the refund procedure itself involves withholding an administrative fee: the tourist receives about 85% of the amount of VAT paid, minus a fixed commission of 4.80 dirhams for each purchase (tag).

To use the tax free system, you need to make sure in advance that the outlet is connected to the tax refund program. These stores usually have a special label.

The procedure includes several steps:

— When purchasing, you should request a special tax free receipt from the seller. The minimum purchase amount must be at least 250 dirhams.

— Before departure from the country, it is necessary to confirm the export of goods. This is done through special electronic terminals or at airport return counters.

— To complete the procedure, you will need a foreign passport, purchase receipts and a bank card to transfer funds.

The refund can be made either by card or in cash, depending on the selected method and available options at the airport.

Tax residency 

Despite the absence of income tax for most individuals, the UAE has a system for determining tax residency, which is important for international planning and the application of double taxation agreements.

It should be understood that in order to physically the person has received the status of a resident, it is necessary to fulfill a number of requirements. Residency plays a key role in this system, as residents are subject to taxation on their global income, while non-residents are taxed only on income earned in the region.

To recognize an individual as a tax resident, at least one requirement must be met:

  • The main place of residence is in the UAE, and personal or economic interests of a person are associated with them.
  • The actual stay in the country is at least 183 days during any consecutive 12-month period.
  • The person has a valid resident visa and spends at least 90 days a year in the country, while doing work or business in the Emirates.

Obtaining resident status can provide access to the benefits of international agreements and be used to optimize workload in other jurisdictions.

The Raqeeb program was announced to increase transparency and combat tax violations. It allows citizens and residents to report cases of non-compliance or tax evasion. The program promotes a more responsible approach to obligations and strengthens trust in the tax system.

Taxation of individuals in the UAE is a dynamic and attractive system that promotes business development and attracts foreign investment. The residency system, programs to combat tax violations and the possibility of VAT refunds for tourists create favorable conditions for living and doing business in the region. Understanding local legislation will help you plan your finances effectively and maximize the benefits of living in this dynamic and developing region.

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