The UAE has consistently been one of the countries with the most favourable taxation policies. It is synonymous with minimum liability and maximum benefits. Tax is an important financial aspect in any country. Being the most tax-advantaged country in the world, the UAE consistently makes its mark in the business world.
The UAE offers zero personal income tax and numerous free zones specifically designed to benefit individuals with low or zero tax charges.
However, there's a slight change in one of the tax policies within the UAE taxation ecosystem, specifically a new rule of a 9% Federal Corporate Tax on business profits.
Furthermore, the UAE is a great place to maximise income and save money because there are no federal inheritance, wealth, or gift taxes.
Tax Rules in the UAE
- No Income Tax for Individuals
The most lucrative aspect of the UAE taxation system is that it levies zero per cent tax on your salary, wages, or income from investments. This is the core reason why investors and entrepreneurs are attracted to the United Arab Emirates.
- 9% Corporate Tax
The corporate tax rule for businesses isn't even 3 years old. The rule imposed in 2023 stated that all corporations earning profits above 375,000 AED will be taxed. Any income below this range will not get taxed.
- 5% Value-Added Tax
In the UAE, the Value-Added Tax rule came into effect in 2018, and it 5%. VAT is a tax form imposed on products or services you buy or use. Making it clear that the UAE government often doesn't take VAT on healthcare and educational services.
- Treaties on Double Taxation
The UAE's broad network of Double Taxation Agreements (DTAs) is another important aspect of its tax environment. These are specific agreements with foreign countries. For instance, residence in the UAE while earning abroad from dividends, interest, or royalties creates instances when these agreements serve to avoid or reduce the joint taxation on the same income. For this purpose, one may typically obtain a Tax Residency Certificate (TRC) from the Federal Tax Authority (FTA) to confirm their tax residency in the UAE. This would enable one to benefit from these treaties.
Leveraging Zero Personal Income Tax
No Salary Tax
Wages paid to salaried persons are free from tax. This means you retain a significant portion of your income compared to those in other countries with higher tax rates. For example, in the United Arab Emirates, an individual earning an annual revenue of AED 300,000 (approximately USD 81,700) can save thousands more than one whose earnings are subject to a tax rate of 20% or 30%.
Gains from Tax-Free Investments
Your investment income is non-taxable while in the U.A.E. This means no tax will be levied upon the dividends or capital gains generated from investments. So, regardless of whether you invest in local property, international shares, or other assets, none of your capital gains will ever be levied by local taxes. It is, therefore, very enticing for wealthy individuals who want to multiply their wealth in a shorter time.
- Maintain Your UAE Tax Residency (Consider Expats in Particular)
TRC and Double Taxation Treaties
Being considered a tax resident in the UAE may alleviate or eliminate a tax-based burden back home if you originate from a country that taxes all of your income, regardless of where you earn it. In the U.A.E., TRCs are issued to individuals or companies that meet a minimum agreed-upon residence criterion.
- Take Advantage of Free Zones with Low or No Corporate Tax
The Operation of Free Zones
There are around 40 free zones in the UAE. Among the many benefits offered by these special zones are 100% foreign ownership, no customs charges, and, above all, the opportunity to pay little or no corporation tax on "qualifying income." A business in a free zone may be eligible for a 0% tax rate on specific transactions under the recently enacted federal corporation tax law. This occurs if it satisfies the requirements to be considered a "qualifying free zone person." This often entails maintaining minimal business in the mainland United Arab Emirates.
Conclusion
It is a great idea to start your business in the United Arab Emirates. This country not only offers the best tax policies but also many business-supportive approaches. At Markai Corporate Services, we make business setup simple and effective, from assisting you with your documentation process to helping you optimise your tax position. Reach out to us today for more information.
