Taxation of individuals

Absence of taxation

There is currently no personal income tax in the United Arab Emirates. As such, there are no individual tax registration or reporting obligations.

Under the Federal Decree-Law No. 47 of 2022 on the Taxation on Corporations and Businesses (‘UAE CT Law’), natural persons who conduct a business or business activity in the United Arab Emirates will be subject to UAE CT at 9% where the total turnover derived from such business or business activity exceeds 1 million UAE dirham (AED). For this purpose, wages, personal investment income, and real estate investment income will not be considered for determining such turnover.

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Social Contribution  

There is a social security regime in the United Arab Emirates that applies to qualifying UAE and other GCC national employees only. Non-GCC nationals are not subject to social security in the United Arab Emirates.

For UAE national employees, social security contributions are calculated at a rate of 20% of the employee's gross remuneration as stated in the local employment contract. Social security obligations also apply to employees of companies and branches registered in a free trade zone (FTZ). Out of the 20%, 5% is payable by the employee, 12.5% is payable by the employer, and an additional 2.5% contribution is made by the government. A higher rate of 26% is applied in the Emirate of Abu Dhabi, where the contribution of the employer is increased to 15%, the government’s contribution is increased to 6%, and the employee’s contribution remains 5%.

For other GCC nationals working in the United Arab Emirates, social security contributions are determined in accordance with the social security regulations of their home country.

The employer is responsible for withholding and remitting employee social security contributions.

In the Dubai International Financial Centre (DIFC), the DIFC Employee Workplace Savings Scheme (DEWS) has been introduced, replacing the End of Service Gratuity Benefit (EOSG) , with the aim of protecting long-term employee savings. The new scheme was rolled out on 1 February 2020, and employers now are required to make monthly contributions to DEWS or an alternative regulated Qualifying Scheme, as opposed to paying a lump sum ‘gratuity payment’ to an employee at the end of their employment.  Employers are required to contribute monthly contributions of 5.83% or 8.33% of the employee’s basic salary (the actual percentage is contingent upon the employee’s length of service) into the scheme.

Unemployment insurance scheme 

The unemployment insurance scheme introduced in Federal Decree-Law No. 13 of 2022 applies to Emirati and foreign workers and entered into effect on 1 January 2023. The scheme provides financial support to qualifying individuals in the public and private sectors in the event of unemployment.

The scheme divides subscribers into two categories: (i) those who earn AED 16,000 or less as basic salary per month and (ii) those who earn more than AED 16,000 as their monthly basic salary. Those who fall under the former category are required to pay a monthly subscription fee of AED 5, while those who fall under the latter category must pay a monthly subscription fee of AED 10. Given that this is a new law, we are waiting for further details on the implementation of the scheme. Thus far, the obligation for the deduction of the monthly subscription fee falls on the employee.

While the scheme is mandatory for Emirati and foreign workers in the private and public sectors, it does not apply to the following groups:

• Investors.

• Domestic workers.

• Employees contracted on a temporary basis.

• Minors (those under the age of 18).

• Retirees who are already receiving pensions and who have joined a new employer.

Taxation of legal persons

Under the Emirate-level tax decrees, income tax is payable under a progressive rate system, with rates up to 55%. However, in practice, these tax decrees have not been applied. Instead, branches of foreign banks are subject to income tax at a flat rate of 20% under separate Emirate-level bank decrees. Companies engaged in UAE oil and gas and petrochemical activities are subject to income tax at varying rates under their individual UAE concession agreements or fiscal letters.

The Federal UAE CT Law, which is effective for each taxable person’s new financial year beginning on or after 1 June 2023, will be applicable across all Emirates and will apply to all business and commercial activities, except to the following exempt persons (subject to conditions):

• UAE government entity.

• UAE government-controlled entity.

• Person engaged in an extractive business in the United Arab Emirates.

• Person engaged in a non-extractive natural resource business in the United Arab Emirates.

• Qualifying public benefit entity.

• Qualifying investment fund.

• Public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the state and that meets any other conditions that may be prescribed by the Minister.

• Juridical person incorporated in the state that is wholly owned and controlled by certain exempt persons.

• Any other person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.

A rate of 15% is applicable to multinational companies.

 
Value Added Tax - VAT

VAT was introduced in the United Arab Emirates on 1 January 2018. The general VAT rate is 5% and applies to most goods and services, with some goods and services subject to a 0% rate or an exemption from VAT (subject to specific conditions being met).

The 0% VAT rate applies to goods and services exported outside the VAT-implementing Gulf Cooperation Council (GCC) member states, international transportation, the supply of crude oil/natural gas, the first supply of residential real estate, and some specific areas, such as health care and education.

Further, according to Cabinet Decision (No. 46 of 2020) on 4 June 2020, a person shall be considered as being ‘outside the state’, and thus fall under zero-rating export of services, if they only have a short-term presence in the state of less than a month and the presence is not effectively connected with the supply.

A VAT exemption applies to certain financial services, as well as to the subsequent supply of residential real estate. Further, transactions in bare land and domestic passenger transport are also exempt from VAT.

Certain transactions in goods between companies established in UAE Designated (Free) Zones (DZs) may not be subject to VAT. The supply of services within DZs is, however, subject to VAT in accordance with the general application of the UAE VAT legislation.

For UAE resident businesses, the mandatory VAT registration threshold is AED 375,000 and the voluntary registration threshold is AED 187,500. No registration threshold applies to non-resident businesses making supplies on which the UAE VAT is required to be charged.

VAT grouping is allowed, provided certain conditions are met.

There are specific documentary and record-keeping requirements, such as the requirement to issue tax invoices and submit VAT returns (on a quarterly or monthly basis depending on the allocation by the FTA).

Excess input VAT can, in principle, be claimed back from the FTA, subject to a specific procedure. Alternatively, VAT credits may be carried forward and deducted from future output VAT.

Businesses that do not comply with their VAT obligations can be subject to fines and penalties. There are both fixed and tax-geared penalties.