Is UAE really TAX FREE?

In short, not at all ☺ Those times are over, unfortunately. However, UAE is still a low tax regime with reasonable requirements/tax incentives.

Let’s look at taxation of (1) private individuals, (2) freelancers and (3) companies 

‍

1. Taxation of UAE-Resident Individuals

• Personal income tax is 0%
• Taxes on dividends is 0%
• Taxes on capital gains is 0%
  
  That is correct: you, on a personal level are NOT taxed on your income in the UAE, as long as you have a valid resident visa and you receive income on a personal capacity (not as a freelancer or as a company)

‍2. Taxation of UAE-Resident Freelancers

• In case a freelancer provides services to clients in UAE/outside of UAE, up until AED 375,000 revenue per financial year, the freelancer doesn’t have to pay any VAT and doesn’t have to register for VAT
• If the freelancer crosses the AED 375,000 threshold in any financial year, then it is mandatory to register for VAT with the Federal Tax Authority (FTA)
• From there onwards, the freelancer has to invoice his/her clients in UAE with 5% VAT. 5% VAT will have to be paid to FTA
• The incoming revenue from outside of UAE stays with 0% VAT (no VAT payable from those revenues) as long as the services rendered are used outside of the UAE
• Freelancers get Corporate Tax exemption (0% Corporate Tax) up until AED 1,000,000 revenue per financial year.
• If this threshold is crossed in a financial year, then the Freelancer will be subject to 9% Corporate Tax on it’s taxable income from there onwards. Once you crossed the threshold, you cannot go back to CorporateTax exemption.

3. Taxation of UAE Companies

Value Added Tax (VAT)

• The UAE has been completely tax free until January, 2018, when the Federal Tax Authority (FTA) was launched in the UAE, along with a 5% VAT scheme.
• Every company, however, can operate with 0% VAT (which means the company is completely tax free) up until AED 375,000  (approx. USD 102.000) revenue per financial year.
• Once a company crosses this threshold, it’s mandatory to apply for a ‘TRN’ (Tax Registration Number, which is the equivalent of a ‘tax id’ in Europe), within 30 days of crossing the threshold (if you miss this, you get AED 10.000 penalty from the FTA).
• There are some exceptions under this (for example, if your company is making supplies which are exempt from VAT: this is common in trading businesses that buy goods outside of UAE and sell them outside of UAE)
• For companies in consulting/professional services (marketing, IT, HR, etc.), even if 100% of their revenue is coming from outside of UAE, then and only then, upon crossing the AED 375.000 threshold, within 30 days, you have to either register for VAT or request exemption from VAT (claiming that all your clients are outside of UAE). However, not doing any action, will get you a AED 10.000 penalty
• The VAT registration can be done directly with the Federal Tax Authority or through the help of a local accounting/auditor firm. The process takes usually 3-4 weeks. Our bookkeeping team is happy to help you with this!
• Once a company has registered for VAT, it has to prepare and submit quarterly VAT returns to the FTA (we are happy to help with this!)

Example – providing services: if you have a UAE consulting company and you are registered for VAT and you are selling your services to another UAE company for AED 105,000 (100,000 + 5% VAT) then 5% of 100,000 = AED 5,000 will need to be paid to FTA by your company as VAT. If, your client, however, is located in the same freezone where your own company is registered, then you don’t have to charge VAT for such clients and there will be no VAT payable to FTA.

Example – paying suppliers: if your UAE company buys services from another UAE company for AED 105,000 inclusive of VAT (and this supplier is NOT in the same freezone as you AND the other UAE company is registered for VAT), then you can claim back 5% VAT (AED 5,000) from the invoice amount you paid to you supplier, from the FTA. Always make sure, you get a tax invoice from suppliers. In case your supplier has not yet crossed the AED 375.000 revenue threshold in any financial year, then he/she won’t be able to issue a tax invoice and hence, you won’t be able to claim any VAT back. If you buy services from a company outside of UAE, I cannot claim any VAT back.

For all VAT Return / accounting related matters, you can appoint a local bookkeeping firm to give you advise and to file all your VAT returns on your behalf. Our Bookkeeping Agency under the UAE-Solutions umbrella is happy to assist you with such services!

Corporate Tax (CT)

• The UAE has introduced 9% Corporate Tax in 2024
• 2024 is the first Corporate Taxable year, applicable for ALL companies in the UAE (freezone, offshore, mainland). There are a few exempt industries like Qualifying Investment Funds, The UAE Federal and Emirate Governments, Businesses engaged in the extraction of UAE Natural Resources, etc.
• Corporate Tax registration is mandatory for ALL companies, regardless of size, revenue, activity, etc. Even if you company is not active, doesn’t have any revenue, you still have to register for Corporate Tax. New companies have to register within 90 days of incorporation. Existing companies have to follow registration deadline guide of FTA, for 2024. The penalty for non-compliance with Corporate Tax registration, is AED 10.000.
• There are various scenarios in which your company can be exempt from Corporate Tax, Please download our CORPORATE TAX GUIDE from our website
• The Corporate Tax law mandates ALL companies to conduct regular, monthly bookkeeping/accounting/record keepin.
• The basis of Corporate Tax returns, Corporate Tax exemption requests is the monthly bookkeeping/annual financial records
• If your company has been in existence before 2024, and you haven’t done any bookkeeping, you need to do your backlog accounting from your original incorporation date till the present date, making sure you have your opening balances setup and books of accounts are updated.
• Penalties for non-compliance with such recording keeping ranged between AED 10,000 and AED 30,000

We have skilled accountants in-house, domain experts in the area of Corporate Tax, Value Added Tax, Corporate Secretarial Services, Corporate Structuring, Regulatory Compliance. Our CFO (LinkedIn) is a CPA, CMA, ACMA, ACS certified, IFRS diploma holder expert with over 20 years of multinational, finance experience. She offers paid consultations (USD 399 / 60min) if you’d like to deep dive more into the above topics.  You can book her via this link.

‍