United Arab Emirates
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 healthcare 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 375,000 United Arab Emirates dirham (AED), 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 Federal Tax Authority [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.
Generally, a customs duty of 5% is imposed on the cost, insurance, and freight (CIF) value of imports. Other rates may apply to certain goods, such as alcohol and tobacco, and certain exemptions and reliefs may also be available.
The United Arab Emirates is part of the GCC Customs Union, which was established in 2003 to remove customs and trade barriers among the GCC member states. No customs duties are levied on trade between the GCC member states. Additionally, the United Arab Emirates grants duty free imports to most national goods originating in member countries of the Greater Arab Free Trade Agreement, Singapore, and the European Free Trade Association countries (i.e. Norway, Switzerland, Iceland, and Liechtenstein).
While the UAE FTZs are areas within the territory of the United Arab Emirates, these are, however, considered outside the scope of the customs territory. Therefore, goods imported into the UAE FTZs are not subject to customs duty. Customs duty is suspended until the goods are imported into the GCC local market.
On 1 October 2017, the United Arab Emirates introduced an excise tax on tobacco and tobacco products, carbonated drinks, and energy drinks.
On 1 December 2019, the United Arab Emirates expanded the scope of excise tax to include sweetened drinks, electronic smoking devices and tools, as well as liquids used in electronic smoking devices and tools.
The applicable tax rates are as follows:
- 100% on tobacco and tobacco products, electronic smoking devices and tools, liquids used in electronic smoking devices and tools, and energy drinks.
- 50% on carbonated drinks and sweetened drinks.
Municipal or property tax
Most Emirates impose a municipality tax on properties, mostly by reference to the annual rental value. It is generally the tenants' obligation to pay the tax. In some cases, separate fees are payable by both tenants and property owners. For example, in the Emirate of Dubai, the municipality tax on property is currently imposed at 2.5% on annual rental value for commercial properties (paid by property owners) and 5% for residential properties (paid by tenants).
A registration fee may be levied on transfer of ownership of land or real property. For example, a land registration fee is levied in the Emirate of Dubai at a rate of 4% of the fair market value of the property (a cost generally shared between the buyer and seller), payable to the Dubai Land Department. In Dubai, the registration fee may also apply on the direct or indirect transfer of shares in an entity that owns real property.
These levies are imposed and administered differently by each Emirate.
Currently, there are no separate stamp taxes levied in the United Arab Emirates.
Since there is currently no personal income tax in the United Arab Emirates, there is no payroll tax withholding obligation for employers.
Social security contributions
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 17.5% 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 an FTZ. Out of the 17.5%, 5% is payable by the employee and the remaining 12.5% is payable by the employer. A higher rate of 20% is applied in the Emirate of Abu Dhabi (where the contribution of the employer is 15%). For other GCC nationals working in the United Arab Emirates, employee social security contributions are determined in accordance with social security regulations of their home country.
The employer is responsible for withholding and remitting the 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.
Hotel tax and tourism levies
Most Emirates impose hotel levies, which apply on the value of hotel room rental, services and entertainment. These levies are imposed and administered differently by each Emirate.
A Tourism Dirham fee is levied in the Emirate of Dubai. This is a charge on hotel guests and tenants of hotel apartments ranging from AED 7 to AED 20 per room per night depending on the star classification of the hotel, for example a five star hotel will levy a Tourism Dirham fee equal to AED 20 per room per night whereas a two star hotel will levie a Tourism Dirham fee equal to AED 10 per room per night. In the Emirate of Abu Dhabi, hotels will levy a tourism fee equal to 6% of the hotel room rental and a destination fee of AED 15 per night.
In addition to the above tourism fees and destination fee, the Emirate of Dubai also requires hotels to levy a 7% municipality fee on each hotel sale. Likewise, in the Emirate of Abu Dhabi, hotels are required to levy a 4% municipality fee. A hotel sale is revenue generated by a hotel for services provided to their guests or visitors which includes rent for the hotel room, food, beverages and other services.