One of the most common misunderstandings about the UAE is that there are “no taxes at all.” The region is often promoted as a tax haven, where no amount of tax is levied, and companies don’t have to pay anything towards the government. While the UAE does offer significant tax benefits for both individuals and companies, claiming that the region is completely tax-free is simply not true.

Today, we’re breaking down the UAE tax system, revealing the truth about what taxes apply to individuals and business owners in the region.

1. UAE Corporate Income Tax 

One of the most attractive things about the UAE tax system is that salaries and personal earnings are not taxed. This means that for private individuals, there is no difference between gross and net income. Earnings from non-business activities, such as investments and real estate, are also not subject to tax.

However, there is a threshold for combined revenue. This is currently set at AED 1 million per calendar year. Individuals earning above this threshold do become taxable by law.

So when are natural persons subject to UAE corporate income tax?

Individuals running a professional activity (i.e. business) in the UAE, operating through Permanent Establishment, or receiving state-sourced income, are all subject to paying corporate tax.

For small business owners earning less than AED 375,000 in taxable income, corporate tax is not levied. This is part of a government initiative to support small businesses and foster their growth through various benefits. Businesses earning above this threshold are subject to 9% corporate income tax.

It’s important to note that the UAE tax system also offers significant benefits for free zone companies. Entities that qualify for these benefits are eligible for 0% corporate tax for specific activities. 

In cases where a double-tax treaty or other international agreement conflicts with the UAE Corporate Tax Law, priority is given to the treaty.

2. UAE Value Added Tax (VAT)

Now, let’s take a look at the reason why “no taxes” doesn’t exactly cover the reality of the UAE. 

A flat rate of 5% VAT is imposed on most goods and services. This tax is added to the price that consumers pay for goods and services like groceries, electronics, and dining out.

Some specific goods and services, including healthcare services, education, and a few staple food products are either taxed at 0% (meaning VAT costs can be reclaimed) or are fully exempt from VAT.

These taxes are usually only displayed on the final bill and receipt of payment. This means they often go unnoticed in everyday purchases, leading many people to falsely believe that nothing they earn or spend in the UAE is ever taxed. 

While their earnings might not be taxed, their spending definitely is.

3. UAE Tourism Tax

Another type of tax that many people are unaware of is the tax imposed on tourism and recreation. Hotels and restaurants may charge an additional 7-10% tourism fee on their bills. The exact rate varies across the emirates. Theme parks, recreational facilities, and tickets for events can also carry a small tourism surcharge.

Again, these taxes often go unnoticed, especially to tourists and those just visiting the region. But almost all visitors and residents will pay these small fees at some point, meaning that taxes are definitely in effect in the UAE.

4. Conclusion

While private earnings are not taxed in the UAE, taxes are still present in other forms. It’s especially important for business owners and entrepreneurs to be aware of these tax policies to avoid falling for the “0% tax” slogan used by some corporate service providers. The income, jurisdiction, and type of business that your business operates all have an impact on the taxes you will be subject to paying. While this may be 0% in the right circumstances, it definitely isn’t true for all cases.

We recommend consulting with a regional legal and tax advisor to help determine which category your business falls under. The official publications of the UAE Federal Tax Authority are also a great source of information. We encourage entrepreneurs to seek out relevant and updated information before diving into bringing their UAE business ideas to life. 

If you’d like to book a consultation with one of our legal and tax advisors, or simply wish to explore your options with the help of an expert, book a consultation with us. We look forward to helping you make the right choices for your UAE business.