Tax Law

Tax Law

The United Arab Emirates is renowned for its commitment to providing a luxurious and comfortable lifestyle for its citizens and residents. To support this, the UAE has implemented a comprehensive tax system administered by the Federal Tax Authority (FTA). This article aims to provide a clear and concise overview of the UAE tax law and the different types of taxes applicable in the country, simplifying the process for individuals and businesses.

Types of Taxes in the UAE

  • Value Added Tax (VAT)
  • Excise Tax
  • Corporate Tax
  • Tourism Tax

Value Added Tax in the United Arab Emirates

The Value Added Tax (VAT) law was implemented in the United Arab Emirates on January 1, 2018. The UAE VAT law is considered indirect and is imposed on most goods in transactions related to the supply of goods and services, with the tax applied at each stage of the supply chain. It’s important to note that the standard VAT rate is 5%, and the final consumer bears the burden.

VAT serves as a new source of income in the UAE, contributing to ensuring the continuity of high-quality government services and aligning with the UAE’s vision to reduce reliance on oil. We will provide you with an example of how VAT operates.

Registration for UAE VAT is required if imports exceed the mandatory threshold of AED 375,000. Optional registration is also possible if imports reach AED 187,500.

It is worth mentioning that goods exempt from VAT in the UAE do not include food items but are limited to real estate, vacant land, public transportation, and some financial services.

Excise Tax

The United Arab Emirates imposed excise tax in the last quarter of 2017 with the aim of limiting the consumption of goods that may harm human health or the environment. Excise tax is one of the indirect taxes imposed on certain goods, with the tax rate varying according to the type of goods. The goods are categorized as follows:

  • Energy drinks
  • Carbonated and sweetened beverages
  • Tobacco and cigarettes, including liquids used in electronic smoking devices

For the excise tax rates, they are as follows:

  • Cigarette tax in the UAE: 100%
  • Energy drinks tax: 100%
  • Carbonated beverages tax: 50%

Corporate Tax

The United Arab Emirates (“the State”) issued Federal Decree-Law No. (47) of 2022 regarding Corporate and Business Tax (hereinafter referred to as the ‘Corporate Tax Law’) on December 9, 2022.
The Corporate Tax Law establishes the legislative framework for the imposition and application of federal corporate tax (‘Corporate Tax’) in the State, and it applies to financial years commencing on or after June 1, 2023.
The introduction of Corporate Tax aims to support the State in achieving its strategic objectives and accelerating its development and growth. The certainty of having a competitive corporate tax system adhering to international standards, coupled with an extensive network of double taxation avoidance agreements for the State, will enhance its position as a leading hub for business and investment.
Given the State’s status as a leading financial center and an international business hub, the Corporate Tax system is built on global best practices, incorporating internationally recognized and accepted principles. This ensures the ease of understanding the Corporate Tax system in the State and the clarity of its economic implications.
Corporate Tax is a form of direct tax imposed on the net income of companies and other businesses. In some other countries, Corporate Tax is referred to as ‘Corporate Income Tax’ or ‘Business Profits Tax.’

The scope of the application of Corporate Tax includes legal entities established in the free zones of the State as ‘taxable persons,’ and they are required to comply with the provisions of the Corporate Tax Law. However, a person established in the free zone who meets certain conditions can be considered a qualified person in the free zone, and in such cases, they may benefit from a 0% Corporate Tax rate on their qualifying income.

Non-resident individuals without a permanent establishment in the country or those earning income not related to their permanent establishments may be subject to withholding tax at the source (at a rate of 0%). Withholding tax at the source is a form of corporate tax collected at the source (origin) by the payer on behalf of the income recipient. Withholding taxes at the source exist in many tax systems and are usually applied to cross-border payments for stock or share profits, interest, royalties, and other types of income. According to the tax systems in most countries, corporate tax law imposes income tax based on residence and origin. The applicable basis depends on the classification of the taxpayer.

Corporate income tax is levied on the taxable income earned by the taxpayer during a tax period. Generally, corporate income tax is imposed on an annual basis, and the taxpayer’s corporate tax liability will be calculated on a self-assessment basis. This means that the corporate tax will be computed and paid through a tax return submitted by the taxpayer to the Federal Tax Authority. The starting point for calculating taxable income is the accounting income (i.e., net profit or loss before tax) of the taxpayer according to its financial statements. The taxpayer will then need to make certain adjustments to determine its taxable income for the relevant tax period. For example, adjustments may be required for income exempt from corporate tax or expenses not deductible wholly or partially for corporate tax purposes.

Tourism Tax

The state imposes several tourist taxes on restaurants, hotels, hotel apartments, and resorts, as follows:

  • 10% on room rates
  • 10% service fees
  • 10% municipality fees
  • City tax (ranging from 6 to 10%)
  • 6% tourism fees

At Amani Al Kindi Advocates, we ensure the best ways to promote tax culture and the optimal way to protect you from double taxation or paying more taxes than required. We also find suitable solutions for you through our specialized and professional team in the tax field.

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