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23. October 2020 | Liechtenstein – Saving Taxes at ESt & KSt and IP Boxes & Foundations

15. March 2021 | Isle of Man: legal status as crown property and tax law

06. April 2021 | Taxation in the Channel Islands (Jersey/Guernsey/Alderney)

25. October 2021 | Taxes on Malta: fashionable tax haven in the Mediterranean?

04. January 2022 | Taxes in the UAE especially in Dubai (this contribution)

Taxes in the UAE, including Dubai and Abu Dhabi, are among the lowest in the world. Tax law in the UAE requires an income tax for natural persons. However, the tax rate is 0%. Taxation of corporations in the UAE is also generally not subject to taxes. Only the oil and gas industry and banks are taxed in the UAE. They amount to up to 55%. In addition, there has also been a sales tax and an excise duty in the UAE for several years. Furthermore, the UAE has also concluded a double taxation agreement in the area of taxes on income with Germany. However, this contains some peculiarities because it is of importance in the UAE only for resident citizens of the UAE. In addition, the double taxation agreement with the UAE expired on 31 December 2021.

The history of the United Arab Emirates, which we want to look at here in terms of its tax regimes, begins in 1971 with its independence from its protective power Great Britain. At that time, this affected several Emirates, of which Abu Dhabi, Adzman, Dubai, Fujaira, Ra’s al-Chaima, Sharjah and Umm al-Qaiwain finally consolidated into the United Arab Emirates.

Furthermore, the oil boom led to a rapidly increasing economic power of the UAE, although the circumstances are different for the individual Emirates. For example, the Emirate of Adschman is economically dependent on the subsidy of the richer Emirates due to lack of its own resources. Nevertheless, the bubbly income from the oil and gas reserves is sufficient to also massively shape the tax law of the UAE. However, one must distinguish the general tax law of the UAE from the special regulations on taxes in the individual Emirates. However, because a presentation of all special tax regulations would require a separate contribution, we limit ourselves in this article to the most important ones. This refers in particular to those in Dubai and Abu Dhabi.

To be resident in the UAE, one must either have citizenship and reside there, or as an immigrant, acquire a suitable tax certificate from the local authorities. Because only with such a tax certificate can you prove that you are resident in the UAE. Such a tax certificate can be obtained either by buying a property in the UAE or by establishing a company in the UAE or in a free trade zone. Most free trade zones exist in Dubai. But also in Abu Dhabi and in other Emirates free trade zones advertise for companies from abroad.

Unlike the USA, Germany and many other countries in the world, the concept of the world income principle is foreign in the UAE. But the territoriality principle is also not directly applied in the UAE. However, the reasons for this are clear when you read the next paragraph.

To make it short: The UAE does not impose taxes on the income of natural persons. More specifically, there is actually an income tax law in five of the seven Emirates. However, this provides for a tax rate of currently 0% on any income. And there is much to suggest that this regime will continue in the foreseeable future.

This also applies to influencers who move to Dubai to save taxes in the UAE. Also for many other wealthy people, Abu Dhabi, Dubai and the other Emirates are a tempting destination to emigrate because you do not pay taxes in the UAE.

Just like the tax exemption of natural persons, for a long time in the UAE no corporate taxes were generally known. Especially in the free trade zones (free zones), companies or permanent establishments established there can use this tax advantage for themselves in this context. In the rest of the country, however, since 2023 a corporate tax of 9 % applies, which must also be paid by partnerships. However, this only applies after exceeding an allowance of approximately EUR 95,000.

This thus means that, in the favorable case of a business formation in one of the free zones, the UAE does not provide for taxation of sole proprietorships, partnerships or corporations. Incidentally, in the UAE there are no taxes that correspond to the German trade tax.

However, there are a few exceptions to this tax exemption. The company tax only concerns companies in certain sectors. This includes in particular petrochemicals, which accounted for 26 % of the UAE’s government revenues through its 2018 levies. Banks also pay taxes in the UAE. However, the tax rates are quite different in the individual Emirates. The tax rate can be up to 55%. And since in the UAE you trade oil and natural gas in USD instead of the national currency, the taxes in this currency flow to the state.

From this one must distinguish all those companies that are established in the free trade zones. For example, banks do not pay taxes in the UAE.

2.4.1.Taxes in the UAE: Sales Tax

Since 2018, the UAE has levied taxes on sales. The taxation initiative stems from a joint decision of the states of the Gulf Cooperation Council, to which the UAE has also joined. The reason for this was that the Gulf Cooperation Council member states wanted to find a way to reduce their financial dependence on oil revenues. Finally, the sometimes highly fluctuating oil prices on world markets have had a direct impact on the financing of the UAE budget in the past. The other member states of the Gulf Cooperation Council also recognized the risks posed by it. This was addressed by diversifying the economic base. In this context, the imposition of a sales tax appeared to be an appropriate measure. The tax rate on these taxes in the UAE is only 5 %.

Furthermore, no input tax is known in this context in the UAE. Instead, only the end-users are charged the sales tax.

2.4.2. Excise duties

In the same decision, which led to the widespread introduction of VAT in the UAE as well as in other Gulf Cooperation Council member states, it was also decided to introduce excise duties on certain goods. These are generally goods which have harmful effects either on their use or on the environment. Thus, for example, tobacco products are affected by the excise duty. Another example of this is the sale of alcoholic beverages, which the UAE charges a tax of 30 %.

First of all, it should be mentioned that for foreigners the acquisition of real estate in the UAE is generally only allowed in certain state-defined areas. This applies to both residential property and commercial real estate.

Apart from this, however, there is no tax in the manner of the German real estate transfer tax in the UAE. However, fees are provided for the transfer of ownership in the registers provided for this purpose.

In line with the insignificance of income tax for natural persons in the UAE, there are also no social contributions. Nevertheless, the standard of care in the UAE is among the best in the world.

There is also little to mention about other taxes in the UAE, especially in Abu Dhabi and Dubai. For example, there are no taxes on gifts or inheritances. Needless to say, there are no property taxes in the UAE.

Like many other states and tax regimes in the world, the UAE has bilateral agreements to avoid double taxation and tax reduction in the area

taxes closed from income (DBA). Among other things, the UAE also agreed with Germany on such a DTA. However, this is somewhat curious. While the Federal Republic of Germany was obliged to apply the regulations of the DTA to all taxpayers, this only applied to its own citizens on the UAE side. As a result, however, it was also possible to open up possibilities for control design. For example, if you moved to Dubai as a German GmbH shareholder, you could avoid the removal tax in Germany.

However, the DTA with the UAE contains a validity clause. It is contained in Article 30 of the DTA UAE and provides that the agreement is valid for a period of ten years. At the same time, there is the option of an extension, provided that this is made known to the respective contractual partner before the deadline. However, since the DBA UAE came into force on 14 July 2011, a timely extension had to be made until July 2021. But shortly before, the Federal Republic of Germany informed the UAE that it was not considering extending the DTA. Therefore, the DTA with the UAE expired at the end of 2021.

However, the effects of the expiry of the DTA are hardly important from a German point of view anyway. This is because you had to give up residence in Germany before, if you wanted to give up the unlimited tax liability in Germany by moving to the UAE, for example to Dubai, in order to save taxes. Otherwise, the DTA would only apply if you retain a residence in Germany if you moved there as a citizen of the UAE.