Taxes in Dubai and the UAE for US Expats

The United Arab Emirates (UAE) is often referred to as “a nation of expats” because nearly 9 in 10 people living there are expatriates.¹ Many of these expat residents are US citizens who often move to Dubai or Abu Dhabi to pursue business ventures or employment opportunities while enjoying an exceptionally high standard of living. This is partly thanks to the thriving entertainment, restaurant, and nightlife scene largely supported by the export energy sector and supplemented by the banking, real estate, and entertainment industries.

Most interestingly, for us, taxes in Dubai and the UAE are also a key draw for expats. Read on to learn more about why!

Overview of taxes in the UAE

There are no federal income taxes in the UAE (read: individual income tax is 0%). So, there is no standard individual income tax form or individual tax deadline. The official tax office is the Federal Tax Authority, and the currency is the AED or Dirham (Dh).

Information about tax in Dubai and taxes in the UAE is available on government websites in Arabic and English. Because there is no income tax in the UAE, there is no double taxation treaty (DTT) or Totalization Agreement between the US and the UAE.

However, due to recently-activated tax changes, it may become of interest to US expats residing in the UAE to join the growing list of DTTs³ the UAE has entered into. 

Ascertaining UAE tax residency status

Echoing again, the UAE does not impose taxes on individual income. However, certain business activities (most often conducted in the energy and banking sectors) result in substantial taxes to navigate.  

What’s the tax-governing authority in the UAE? 

The Federal Tax Authority is the government office responsible for administering and overseeing taxes. Additionally, the Ministry of Finance disseminates information related to financial affairs in the UAE.⁴ 

Taxes in the UAE

The UAE and certain emirates, such as Dubai, are generally well known in expat circles as “tax-free” havens. Given the high standard of living in the country and flourishing business opportunities for expats, it makes sense to take a closer look under the hood of the second-largest economy in the Middle East to get a deeper understanding of the tax landscape. 

Property taxes in the UAE

The UAE does not impose property taxes on residential properties. However, there are other costs associated with owning property in the UAE. These costs include registration fees (which occur when ownership is transferred), service charges, maintenance fees, and municipality taxes (which vary by emirate).

Property taxes in Dubai

A transfer of ownership is considered to have occurred when someone is removed from or added to a property. In Dubai, this process ultimately incurs a 4% transfer fee.

Additionally, there is a monthly housing fee, also called a municipality tax.⁵ This is currently imposed at 5% on annual rental value for commercial properties, also known as ‘market fees’ (paid by property owners), and 5% for residential properties, also known as ‘housing fees’ (paid by tenants).⁶

Capital gains tax in the UAE

Good news – there is generally no capital gains tax for individuals living in the UAE!

Corporate tax in the UAE 

Until December 9, 2022, the UAE had no corporate income tax either. The introduction of a corporate tax regime was presented last year via Federal UAE CT Law⁷ and ties in with the country’s strategic goals on a global scale, as well as its stated commitment to the OECD Base Erosion and Profit Shifting Programme.⁸ 

Corporate Tax will be levied at a headline rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax.

– The UAE’s Ministry of Finance

The corporate tax law officially went into effect on June 1st, 2023. Though it’s worth noting that a few final details, such as the AED threshold (currently estimated at $102,000), remain to be confirmed in a Cabinet Decision.⁹

The good news for expats – qualifying free zone persons will not be subject to this tax. This category is also still being refined.¹⁰

According to Arabian Business, “…businesses with a financial year starting on June 1, 2023, and ending on May 31, 2024, will have from June 1, 2024, until February 28, 2025 (21 months) to file their corporate tax returns and make tax payments.

For businesses that have their first tax periods start on January 1, 2024, and end December 21, 2024, the tax returns and payments would need to be made between January 1 and September 30, 2025.”¹¹

Excise tax for businesses

Businesses must register for excise tax if their activity meets any of the following criteria:

• Importation of excise goods into the UAE
• Production of excise goods to be consumed in the UAE
• Stockpiling of excise goods in the UAE (in certain situations)
• Overseeing an excise warehouse or designated zone¹²

Payroll taxes

(See a trend here?) There are no payroll taxes in the UAE.

However, businesses should establish and carefully adhere to a payroll process. If they neglect to do so, they may get flagged by the UAE government. When wages are overdue by 17 days, new work permit applications to the organization will be suspended. Further, if the organization has 50+ workers, it will also be added to an electronic monitoring system.

Leading a business in the UAE? Expect an in-person visit from an inspector.¹³ Financial penalties and operational consequences continue to accrue from the first overdue period. So, payroll issues are worth addressing swiftly (or avoiding altogether).  

VAT

Up until 2018, there was no VAT applied to purchased goods.

In 2018, however, the country implemented a VAT rate of 5% on most goods and services. There are a few exceptions to this tax, including:

• exports, goods, and services outside the Cooperation Council for the Arab States of the Gulf (GCC)
• international transportation
• investment-grade precious metals
• newly constructed residential properties
• some education and healthcare services.¹⁴

Self-employment taxes in the UAE

The UAE can be an excellent place for independent contractors or freelancers with an established and financially stable business. The 0% income tax extends to self-employed foreign residents who apply and are accepted for a self-employment visa, also called a “green visa.”¹⁵

*Worth noting – The final details of the corporate tax, including the filing threshold, are still being finalized. But, likely, self-employment income surpassing that threshold will be subject to taxation.

Wealth taxes and gift taxes in the UAE

(The trend continues!) There are no wealth taxes or gift taxes in the UAE. 

Inheritance taxes in the UAE

While there are technically no inheritance taxes, deaths prior to the creation of a will stood to cause incredible friction for foreign residents in the UAE.

Until January 31st, 2023, the UAE government applied the rule of Shari’a law. This law applied regardless of the nationality of the deceased. It grossly favored descendant males over females and left widows with a claim of only one-eighth of their deceased husband’s UAE estate.

As of February 1st, 2023, fortunately, a much more equitable distribution of assets is triggered in the event of a non-Muslim UAE resident’s death¹⁶ – and there remains no tax on inheritance.  

Do US expats living in the UAE also have to file US taxes?

Yes, US citizens living and working in the UAE must file an annual tax return with the IRS if their income exceeds the minimum threshold. In fact, all US citizens residing abroad, regardless of how long they’ve lived outside the country (or even if they’ve never lived in the country), must file a US tax return annually.

Common tax deductions available for expats in the UAE

There are a host of provisions available to offset the burden of annual US tax filing. When applied strategically, living abroad as a US expat may ultimately become more financially beneficial than living in the US. Read on to learn more about the most common IRS tax provisions available to US expats. 

Foreign Tax Credit (FTC)

The Foreign Tax Credit provides Americans with dollar-for-dollar tax credits on any taxes paid to a foreign government, so long as they are legal, based on income, made out in their name, and paid. Although the credit is nonrefundable, any excess credit can be applied towards reducing your US tax bill on foreign income for up to 10 years. 

Foreign Earned Income Exclusion (FEIE) 

The Foreign Earned Income Exclusion allows Americans abroad to exclude up to $112,000 (2022) of their income from taxation ($120,000 for tax year 2023). Along with the FEIE, you may also be able to exclude qualifying housing expenses via the Foreign Housing Exclusion.

To qualify for the FEIE, you must meet one of two tests:

Physical Presence Test

Those who stay out of the US for 330 days in any 365-day period meet the Physical Presence Test.

Bona Fide Residence Test

Those who are officially residents of another country for one or more calendar years and can prove it through documents like residency cards, rental contracts, utility bills, etc. meet the Bona Fide Residence Test.

Child Tax Credit 

The Child Tax Credit offers all US taxpayers a partially-refundable tax credit of up to $2,000 per qualifying child, provided that they meet the criteria. However, when filing for the 2022 tax year in 2023, most expat parents can expect a partial refund of up to $1,500 per qualifying child due to common international tax filing circumstances. 

FBAR filing requirements for US expats in the UAE

The FBAR filing requirement applies if you have foreign accounts (checkings, savings, investment, pensions, etc.) totaling over $10,000. If so, you’ll have to complete a Foreign Bank Account Report (FBAR) by filing FinCEN Report 114. And if you have foreign assets exceeding $200,000 by the last day of the tax year — or $300,000 at any point in the year — you’ll also need to file Form 8938.*

*Numbers provided apply to single filers only, please refer to our article about Form 8938 for more information. 

Catch up on your US taxes with the Streamlined Procedure (SLP)

In some cases, you may have failed to file tax returns in previous years because you were unaware of the filing requirement. If this describes your situation, you may be able to benefit from an IRS amnesty program called the Streamlined Procedure. As part of this procedure, you’ll file your last three tax returns, last six FBARs, pay any outstanding taxes, and certify that your previous non-compliance was non-willful. Additionally, this procedure is penalty-free.

References

1. UAE Population 2021 by Nationality
2. Federal Tax Authority United Arab Emirates
3. United Arab Emirates – Individual – Foreign tax relief and tax treaties (pwc.com)
4. Ministry of Finance – United Arab Emirates (mof.gov.ae)
5. Same as above.
6. UAE Municipal or Property Tax – PwC
7. Federal Decree Law No. 47 of 2022 English PDF 
8. United Arab Emirates – OECD
9. Corporate Tax – UAE Ministry of Finance
10.  Corporate Income Tax Rates PwC
11. UAE Corporate Tax – Arabian Business 
12.  Excise Tax for Businesses in the UAE
13. Dubai and UAE Payroll: A Guide for US Businesses
14.  All About VAT Exemptions in the UAE and Zero Rate
15. Self Employment Visa UAE – Green Visa
16. Changes to the Inheritance Laws in the UAE from 1 February 2023