United Arab Emirates: The UAE Tax Environment

The United Arab Emirates has more than 140 free zones across seven emirates, including 20 designated zones with separate laws, regulations and VAT treatment. This can make doing business in the UAE a complex journey.

However, there is also the strong benefit of the UAE being one of the easier places in the world when it comes to accounting and tax. Our second annual Financial Complexity Index (FCI) ranked the UAE at 74, placing it among the 20 least complex jurisdictions globally. The World Bank ease of doing business survey sees the UAE in first place for ease of paying taxes.

Here are some specific factors that shape the UAE’s tax environment.

Business and personal tax
The UAE has no personal, corporate, capital or profits tax. Naturally, this leads to a simplicity in tax compliance and accounting complexity, as reflected in our latest research.

VAT
The emirates’ first VAT was introduced in January 2018, and is levied at a low rate of 5%. The implementation of the tax was co-ordinated with other Gulf Cooperation Council (GCC) countries. The VAT does add significant administrative work to an otherwise simple tax system, which is why the UAE’s inaugural FCI ranking of 92 was not sustained for a second year.

Every VAT transaction in the UAE must be documented and paid monthly or quarterly, depending on turnover size. The government uses VAT income to provide high-quality public services in the UAE, aiming to reduce its dependence on oil revenue.

Excise tax
Introduced in October 2017 by the Federal Tax Authority (FTA), the selective, excise tax is levied on goods which are viewed as harmful to health or the environment. These good include:

• carbonated drinks (50%)
• energy drinks (100%)
• tobacco products (100%).

Impacted by this tax are companies that produce, import, stockpile, or even those responsible for overseeing an excise warehouse. The income from the excise tax serves the same purpose as VAT income.

Tourist taxes
The UAE levies taxes on tourist facilities such as hotels, restaurants, resorts, etc. Room rates and municipality fees are 10%. City tax ranges from 6-10% and the tourism fee is 6%.

International
Regulations and controls are in place to ensure that the UAE has reputable standards. Following the UAE’s December 2017 inclusion on the European Union’s ‘Black List’ of tax havens, it committed to undertake reforms to improve transparency and fairness in its tax system. The country was subsequently moved to the ‘Grey List’ and joined the Inclusive Framework on BEPS (Base Erosion and Profit Shifting) a short time later, in May 2018. It is now committed to implementing four minimum standards relating to the following BEPS Actions.

• Action 5: Countering harmful tax practices
• Action 6: Countering tax treaty abuse
• Action 13: Country-by-country reporting at a minimum
• Action 14: Improving dispute resolution mechanisms.

The UAE has 94 agreements in place with other nations to avoid double taxation on investments overseas. And the Multilateral Convention on Mutual Administrative Assistance in Tax Matters provides the basis for international tax co-operation. It covers issues such as the exchange of information on request, spontaneous exchange and guarantees extensive safeguards for the protection of the rights of taxpayers.