Tax laws are few and straight-forward

The federal government of the UAE has not promulgated any tax laws. Most of the individual emirates have issued corporate tax decrees, but, in practice, taxes are only imposed on oil- and gas-producing companies at rates set forth in their government concession agreements, and on branches of foreign banks at rates set out in specific tax decrees or fixed in agreements with the rulers of the emirates in which the branches operate.

The income tax decrees which have been enacted in each emirate provide for tax to be imposed on the taxable income of all bodies corporate wherever they are incorporated, and on the taxable income of those of their branches which carry out trade or business at any time during the taxable year through a permanent establishment in the relevant emirates. Bodies corporate are taxed if they carry out trade or business directly in the emirate or indirectly through the agency of another body corporate.

Taxation in Abu Dhabi

According to the Abu Dhabi income tax decree, all companies carrying on trade or business in Abu Dhabi are required to pay tax on their earnings. The rates of tax are established on a sliding scale up to a maximum of 55%. In practice, however, only:

• Oil- and gas-producing companies pay tax at rates specified in the relevant concession agreement.

Oil companies are also liable to pay royalties on production;

• Branches of foreign banks pay tax at a flat rate of 20% on annual profits. The taxable income of banks is calculated by reference to their audited financial statements. The Abu Dhabi Income Tax Decree of 1965 specifies that an organisation that conducts trade or business within Abu Dhabi shall be subject to taxation as follows:

Taxable Income

A “chargeable person” means a body corporate wherever incorporated, or each and every branch thereof, that carries out trade or business at any time during a given income tax year through a permanent establishment situated within the emirate, whether directly or through the agency of another body corporate (and not entitled under an agreement with the ruler of Abu Dhabi to an exemption from liability to income tax). Two or more such branches of a body corporate so carrying out trade shall each be treated as separate chargeable persons. The fact that a body corporate has a secondary body corporate carrying on trade or business through a permanent establishment in the emirate shall not in itself constitute that parent body corporate as a chargeable person.

“Carrying out trade or business” means:

• Selling goods or rights in such goods within the emirate;

• Operating any manufacturing, industrial or commercial enterprise within the emirate;

• Letting any property located in the emirate; or

• Rendering services in the emirate, (excluding the mere purchasing of goods, or rights in such goods, within the emirate.) A chargeable person in Abu Dhabi shall be charged taxes on a sliding scale as described above except that the tax so charged shall be reduced by the credit aggregate of oil dealt in for that fiscal year so long as the total of all reductions granted to all chargeable persons in that fiscal year shall not exceed the credit aggregate of oil dealt in for that fiscal year. Taxable income is computed after the deduction of all costs and expenses incurred by a chargeable person earning such income.

Deductible costs and expenses include the acquisition cost of goods, the expenses of operating the business, allowances for depreciation, obsolescence and exhaustion of both tangible and intangible assets and losses sustained by the chargeable person in connection with the business.

Investment Incentives

Abu Dhabi has declared and established free zones that offer tax and business incentives aimed at making Abu Dhabi into a global business and commercial centre. The incentives usually include tax holidays for a guaranteed period (most free zones offer a tax holiday of 50 years), 100% foreign ownership, no Customs duties within the free zone and “one-stop shop” administrative services.

Withholding Tax

There are currently no withholding taxes in the UAE.

Personal Income Tax

There is currently no taxation on personal income in the UAE.

Capital Gains

There is currently no capital gains tax in the UAE. For taxpaying entities, capital gains are taxed as a part of business profits.

Custom Duty

Customs duties are very low in the UAE, and there are many exemptions. They are levied generally at a rate of 5%. Goods imported and intended for re-export often benefit from Customs duties, as do manufacturers on the import of their machinery, raw materials and spare parts used for industrial purposes.

Value Added Tax (VAT) 

There is currently no VAT in the UAE.

SOCIAL SECURITY: The UAE does not impose social security taxes on expatriates. Employees who are UAE nationals contribute to retirement and pension funds in accordance with specific regulations.

MUNICIPAL TAX & PROPERTY TAX:

Municipal taxes are imposed on hotel services and cinema shows. Service charge percentages vary among the emirates. A service charge of 5-10% is charged on food purchased in restaurants. Hotels impose a 10-15% service charge per night on room rates. These charges are usually included in the customer’s bill, which the municipality will then collect from restaurants and hotels. Hotels also impose an additional 15% service charge on the services they provide.

In most of the emirates, property tax is payable by residential and commercial tenants by reference to the annual rent, generally for residential property at a rate of 5% and for commercial property at a rate of 5-10%, payable to the local municipality.

REAL ESTATE SALE & PURCHASE FEE:

In Abu Dhabi, a sale registration fee of 1% of the value of the sale is imposed on the seller, and is payable to the Abu Dhabi Land Department. A purchase registration fee of 1% of the value of the sale is payable by the buyer of the property. The rate can differ in other emirates.

FOREIGN EXCHANGE CONTROLS:

There are no foreign exchange controls on the remittance of profits or repatriation of capital, and there are virtually no restrictions on foreign trade.

TAX TREATIES:

The UAE has entered into tax treaties with several countries, including Algeria, Armenia, Austria, Belarus, Belgium, Bulgaria, Canada, China, the Czech Republic, Egypt, Finland, France, Germany, India, Indonesia, Italy, Lebanon, Malaysia, Mauritius, Morocco, Mozambique, New Zealand, Pakistan, Poland, Romania, Singapore, South Korea, Spain, Sri Lanka, Syria, Tajikistan, Thailand, Turkey, Ukraine and Yemen. Treaties that have been concluded but which have not yet formally entered into force include agreements with Bosnia-Herzegovina, Jordan, Luxembourg, Malta, Mongolia, the Netherlands, the Philippines, Seychelles, Sudan, Tunisia and Uzbekistan.

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The Report: Abu Dhabi 2015

Tax chapter from The Report: Abu Dhabi 2015

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