The United Arab Emirates attracts people from across the globe, not only for its safe and family-friendly lifestyle but also for its attractive and favourable taxation policies. Planning to move to the UAE and want to know more about the taxes applicable here? MyBayut provides a handy guide to the various taxes in the UAE applicable to different goods and services, as well as the tax percentages consumers have to pay.
What are the different taxes in the UAE?
Residents and citizens in the UAE enjoy a high standard of living, including excellent roads, parks, healthcare facilities and more, which is all funded by the UAE Government. To maintain this quality of life, the UAE sought to diversify its revenue from hydrocarbons and thus, implemented different forms of taxes, which also is part of the UAE’s Vision 2021. These taxes also help to regulate certain products that are harmful to the health of society.
Keep reading to find out the different taxes that are applicable in the UAE.
Is there income tax in the UAE?
One of the most frequently asked questions is whether there is any personal income tax in the UAE. However, the UAE does not charge direct income tax on individuals residing in the country.
VAT in the UAE
Value Added Tax, commonly referred to as VAT, is one of the most important taxes in the UAE. VAT is an indirect tax that is payable for the consumption of goods and services and is levied at each stage of the supply chain. This UAE tax was introduced from 1 January 2018 onwards.
VAT is usually borne by the end-users with businesses generally collecting and accounting for VAT. Registered businesses collect VAT on behalf of the Federal Tax Authority (FTA), who are responsible for implementing VAT and other taxes in the UAE. They can then apply for refunds and rebates every quarter.
WHAT IS THE VAT PERCENTAGE IN THE UAE? WHAT IS THE VAT APPLICABLE ON?
Want to know what is the tax rate in the UAE? VAT in the UAE is charged at 5%. This tax in the UAE is applicable to the supply of all goods and services, including food and beverage, commercial buildings, hotels and serviced accommodation, jewellery and electronic services.
However, there are certain items that are zero-rated or exempt from VAT tax in the UAE:
- Private and public school education
- International transport of goods and passengers
- Sale or rent of residential buildings
- Activities by not-for-profit organisations
- Bare land
- Local public passenger transport
- Certain investment precious metals, amongst others
WHICH BUSINESSES HAVE TO REGISTER FOR VAT?
Businesses have to register to collect VAT if their taxable imports and supplies exceed AED 375,000. However, businesses whose taxable imports and supplies are below AED 375,000 but above AED 187,500 can choose to voluntarily register for VAT if they wish.
VAT applies to tax-registered businesses in both the mainland and in free zones. However, free zones that are recognised as ‘designated zones’ are considered as outside the UAE for VAT purposes. This means that the transfer of goods between designated zones is exempt from VAT.
Do tourists in the UAE also have to pay VAT?
Tourists will have to pay VAT when making purchases within the UAE, however, they can request refunds on VAT at their departure port when leaving the country. For instance, travellers to Dubai can request VAT refunds when flying out from the Dubai International Airport through self-service kiosks.
However, bear in mind that there are only VAT refunds for tourists in the UAE when they purchase from retailers who are participating in the “Tax Refund for Tourists Scheme”.
Excise tax in the UAE
Known as ‘Excise Tax’, this is a type of indirect tax in the UAE that is levied on specific goods, which include products that are harmful to people’s health or the environment. The excise tax was introduced in the UAE in 2017, however, new excise tax rates in the UAE were announced in December 2019. The cost of the excise tax is also borne by the end-customer.
With the introduction of the excise tax in the UAE, the government is not only curbing the consumption of harmful products but also creating a new source of revenue to fund public services.
WHICH GOODS IS EXCISE TAX APPLICABLE TO?
For those wondering ‘what items have excise tax in the UAE’, this tax applies to the consumption of the following goods:
- Tobacco products
- Carbonated drinks (this does not include sparkling water)
- Energy drinks
- Electronic smoking devices and tools (and liquids used in these devices)
- Sweetened drinks
WHICH GOODS ARE EXEMPTED FROM EXCISE TAX?
The excise tax will not be applied to the following goods in the UAE:
- Ready-to-drink beverages (with at least 75% milk or milk substitutes)
- Baby food or baby formula
- Beverages for special dietary needs as recognised under Standard 654 of the GCC Standardization Organization
- Beverages consumed for medical uses as recognised under Standard 1366 of the GCC Standardization Organization
WHAT ARE THE EXCISE TAX RATES IN THE UAE?
The excise tax percentage in the UAE for the various applicable goods is as follows:
- 50% for carbonated drinks
- 100% for energy drinks
- 100% for tobacco products
- 100% on electronic smoking devices and tools (and on liquids used in these devices)
- 50% on products with added sugar/other sweeteners
Corporate tax in the UAE
Corporate tax is only applicable to certain industries or companies in the UAE, which are oil companies and branches of foreign banks operating in the country. Each emirate in the UAE also has its own corporate tax rate.
Other industries do not have any corporate tax imposed upon them currently.
Tourist tax in the UAE
Tourist tax is levied by restaurants, hotels, hotel apartments and resorts in the UAE. These tourist facilities may charge one or more of these taxes in the UAE:
- 10% on room rate
- 10% as service charge
- 10% as municipality fees
- City tax (which ranges between 6% – 10%)
- 6% as tourism fee
Additionally, the Tourism Dirham Fee in Dubai was introduced in 2014, which is charged by hotels, hotel apartments, guest houses and holidays homes in the emirate. This Tourism Dirham Fee is charged per room per night and ranges between AED 7 to AED 20, depending on the rating of the hotel.
The Tourism Dirham Fee for different categories of hotels is as follows:
- Five-star hotel or resort: AED 20
- Four-star hotel or resort: AED 15
- Three-star and two-star hotel: AED 10
- One-star hotel: AED 7
In the emirate of Abu Dhabi, the tourism fee is charged at 3.5% while the municipality fee is levied at 2%. There is also a municipality room fee, charged daily, which is AED 10 per room per night.
I have more questions. Who should I contact?
If you would like to know more about the taxes applicable in the country, you can contact the Federal Tax Authority (FTA), the government entity that is responsible for implementing federal taxes such as VAT or excise tax. You can contact the FTA by calling them at 600-599-994.
On the other hand, if you require more information on the Tourism Dirham in Dubai, you can contact the Dubai Tourism authority at 600-555-559.
Meanwhile, you can find out more about the tourism and municipality fees in Abu Dhabi by contacting the Department of Culture and Tourism at 800-555.
And that concludes our guide to the various taxes in the UAE. We hope this article answered your questions on the tax system in the UAE and helps you plan your visit or move to the country better!
If you’re planning on buying or renting property in the UAE, you can also take a look at which real estate transactions are exempt from VAT. If you’re planning a visit to Abu Dhabi, take a look at the process of VAT refunds at Abu Dhabi International Airport.
And stay tuned for more articles on life in the UAE!