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Business Taxation for Expats in the United Arab Emirates

Submitted: February 2014

Business taxation is not really a problem in the UAE as businesses generally do not have to pay tax. However you should be aware that five of the emirates have income tax decrees in place (Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah and Sharjah). These decrees are only in force in Abu Dhabi and Dubai for oil and gas production companies or exploration companies, where income tax is charged at a rate of 55% and 50% respectively. Branches of foreign banks are generally subject to an income tax rate of 20% throughout the UAE.

Opening a business

Any company established in the UAE (other than in a free zone) is required to have one or more UAE nationals who own 51% of the company’s capital. There are some exceptions including companies involved in the oil and gas industry, and companies involved in water treatment, transmission and distribution. The process of establishing a company is complex. There is some guidance and useful links here.

Companies established in free zones can have 100% foreign ownership, but can only operate within the confines of the free zone itself. They can also benefit from lower trade tariffs and barriers. Generally they will also be issued with a tax exemption valid for up to 50 years; providing security in case the emirate in question decides to enforce corporate tax.  In addition companies are free to send capital and profits abroad with no taxes or restrictions. A foreign company can establish a branch or representative office in a free zone, or can establish a Free Zone Establishment (FZE). An FZE is a limited liability company governed by the regulations of the relevant free zone. All free zone companies must obtain a licence in order to operate. There are five different types of licence:

  • General trading
  • Trading
  • Industrial
  • Service, and
  • National Industrial.

The licence required will depend on the nature of the business.

If you intend to practice a profession in the UAE, another possibility is a civil company. This would allow you to act as a self-employed “sole trader”. If you choose this course, you will need to apply for the relevant licence. This possibility is not open to persons wish to buy and sell goods, act as a contractor, or work in finance or banking.

Almost all activities in the UAE require a licence. There is more information and links to the various relevant authorities here and here.

Corporate Income Tax

While generally there is no corporate tax charged in the UAE, decrees are in place to allow it to be charged at any given future date. An indication of the rates that would be charged is given by the tax decrees of Abu Dhabi, Dubai and Sharjah, which all set out the following rates:

Taxable Income (AED)Rate
Up to 1,000,0000%
From 1,000,001 to 2,000,00010%
From 2,000,001 to 3,000,00020%
From 3,000,001 to 4,000,00030%
From 4,000,001 to 5,000,00040%
Over 5,000,000 55%

 

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