Last updated on 7 de April de 2023
Dubai is famous for its tall buildings and low taxes. And that makes it one of the favorite destinations for expats from all over the world. We analyze the most important taxes in Dubai.
- Taxes on Earned Income
- Capital Income Taxes
- Real Estate Taxes
- Corporate Tax
- Inheritance and Gift Tax
Dubai is one of the most unique cities in the world and one of the 7 emirates that make up the United Arab Emirates. Located on the coast of the Arabian Peninsula, Dubai was a small enclave half a century ago. But its economic and population growth within just a few decades has catapulted it to one of the world’s mega-cities.
The substantial oil and gas reserves in Dubai, Abu Dhabi, and the rest of the emirates in the country brought significant revenues to this place. But its leaders knew they needed to do more to ensure the prosperity of their country.
Aiming to diversify its economy away from fossil fuels, with a grandiose vision, Dubai has invested heavily in its economy to attract foreign companies and talent from other countries. A very favorable tax regime, low regulation, and economic dynamism have been it possible
Dubai’s population has grown from 60,000 in 1970 to 1.9 million in 2010 and over 3.5 million in 2023. More than 90% of them are foreigners.
The currency of the country is the Dirham of the United Arab Emirates, which receives the code AED. The value of the Dirham is pegged to the US Dollar. Since 1997, the official exchange rate is AED 3.6725 = USD 1.
Dubai is not a cheap place for those who want to have a good quality of life. But it offers high enough salaries and a very attractive tax regime that more than make up for it.
Taxes on Earned Income
Let us kick off our analysis of taxes in Dubai by looking at how labor income is taxed.
There is a social security system in Dubai, but it is only for nationals of the United Arab Emirates and other GCC countries (Saudi Arabia, Qatar, Bahrain, Kuwait and Oman).
For nationals of these countries, employers must pay the equivalent of 12.5 per cent of their gross salary in social security contributions (or 15 per cent in the case of a public companies). For their part, workers must pay 5% of their salary to the social security.
However, most people working in Dubai are foreigners from countries outside the GCC. As a result, neither they nor their employers have to make any contributions to the social security.
It is common for companies employing people in Dubai to pay for private medical coverage and make contributions to a private pension scheme.
Dubai, as well as the rest of the UAE, does not have any kind of income tax. This means that, if you work in Dubai, your take-home salary will be the same as your gross salary.
Many of the people working in Dubai or the UAE’s capital Abu Dhabi have very attractive salaries. Consequently, their net salary ends up being significantly higher than it would be in most Western countries, where the level of taxation would be close to 50%.
Capital Income Taxes
Dubai does not tax capital income either. It does not matter if income comes from your work, your own company, or your investments: it is not taxes.
This means residents in Dubai can receive dividends, interest, and rental income tax-free. Realized capital gains are exempt from tax too.
VAT in Dubai is 5% and applies to most goods and services sold in the country. If we consider the fact that Dubai is a place for conspicuous consumption and luxury, we will understand revenue from VAT makes up a considerable portion of the emirate’s budget.
Introduced in 2018 due to falling public revenues, the news was received badly by the expat community in Dubai. Not for the tax rate itself. But because of the significance of introducing a tax of this nature for the first time in history.
It should be noted that certain goods and services are exempt from VAT in Dubai. Among them we must highlight the following:
- Dwellings and land (subject to real estate taxes)
- Financial services
- Public transport
- International transport
- Precious metals with a high degree of purity (intended for investment)
Real Estate Taxes
The real estate sector is another important source of revenue for the Dubai government. There are two types of real estate taxes paid in Dubai: those levied on transactions and those applicable to rents.
Real Estate Transfer Tax
Although homes and land are not subject to VAT, real estate transactions in Dubai are taxed. Thus, in a real estate transaction, both the buyer and the seller must each pay 2% of the transaction amount in tax.
At the same time, if we finance our purchase with a mortgage, we must pay a 0.25% tax on the amount of the mortgage.
It should be noted that, if we receive property as a donation or inheritance, we must pay a tax equivalent to 4% of the value of the real estate.
The other big property tax in Dubai is the one levied on rents. It works similar to VAT.
Residential rents are subject to a 5% tax. This means that if we pay 10,000 Dirhams in monthly rent, we will also have to pay 500 Dirhams in taxes. This amount is paid together with the rent, and the landlord is responsible for transferring it to the tax authorities.
On the other hand, commercial rents (offices, hotels, warehouses, shops, restaurants, etc.) are subject to a tax rate of 10%.
Corporate tax is complex in the United Arab Emirates, where most taxes are either non-existent or extremely simple.
While the country’s central government does not impose any tax on corporate profits, the governments of the 7 emirates have the power to do so.
In the case of Dubai, corporate tax depends how much profit the company has made and the economic activity it carries out.
For many companies operating in Dubai, the applicable corporate tax rate is 0%. Although if you are going to operate a business there, talk to a lawyer or specialized accountant first, since there are certain requirements you must be aware of.
Banks operating in the country are subject to a 20% corporate tax rate on their profits.
Finally, oil-producing companies are subject to a tax rate of 55%. Income from these companies represent a very high percentage of Dubai’s revenue.
Inheritance and Gift Tax
Inheritance and gift tax does not in Dubai or the rest of the United Arab Emirates. However, we must bear in mind that real estate is still subject to real estate transfer taxes, which are 4% of their value.
Dubai is one of the most fiscally attractive places in the world and filled with luxury. While it is true that there are similar places like Monaco or some islands in the Caribbean, Dubai also manages to attract those that are still in the process of building their fortune, not just preserving it.
Its economic growth has been incredible, and this opens up the potential for plenty of opportunities.
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And if you would like to read about another fiscally attractive country, but this time situated in Europe, check out this link:
Taxes in Andorra – A Tax Haven in Europe
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