The UAE Tax system is a direct result of the governments continued successful attempts to attract a large number of businessmen and investors to the area. The results of these efforts have led to the UAE becoming the premier business hub that it is now today – not just for the Middle East region, but for the global economy.
The Economic Growth of the UAE
It is important to understand that the tax system is an extension of this focus of the UAE. In all its law making, the government has carefully cultivated a legal and tax system ideal to conduct business in. The results of this have been rather dramatic on the economy of the UAE over the several decades.
Today, the high and increasing demand for real estate in the country and its major cities is a clear indicator of the success of these initiatives. Literally all across the country new business and residential complexes are going up year-round. The UAE has become an icon for modern business and attracts tourists from every corner of the earth. It also boasts the world’s tallest building – the Burj Khalifa, the amazing man-made isle of UAE’s traditional symbol – the date palm tree, and the prestigious Dubai Marina that is reputed the world over.
The demand in the UAE, and in Dubai in particular, creates ample opportunities for business in all sectors including booming tourism and hospitality industries. This success, coupled with an ideal tax system to allow business to flourish has established the UAE as a premier global destination for serious investors.
Taxation in the UAE
As mentioned before, the tax system in the UAE is optimized to attract investors and support an economic edge for businessmen who live and work in the country. For example, the UAE has signed several agreements with other economic powers to ensure issues like double taxation are avoided. This in itself is a key component to making the UAE an ideal location for foreign investors to carry out their business.
With regard to personal income tax – there is none in the UAE. This a win-win for both employers and employees who work and live in the region. Essentially, this allows a foreign businessman to come and work in the UAE and only owe taxes as if they were still in their home country, providing a significant economic edge to choosing the UAE over other countries. On top of this corporate income tax only applies to business in the petrochemical industry.
There are no federal business taxes in the UAE either. This means the tax amount is set by each emirate individually. While many areas have rates around 10%, in some areas, rates can inflate as high as 40-50% depending on the bracket a company’s profits fall into.
Free Trade Areas
To attract foreign investors, there are areas in Dubai and elsewhere in the UAE that are considered Free Trade Areas. In such areas, business can setup shop with 100% of its important duties and repatriation of invested capital guaranteed. Additionally, there are no quotas, trade barriers, or financial controls. Companies who primarily make their profits from outside the UAE find such areas an ideal location to do business.
Though direct taxation has been considered in the past, it has never been implemented so that the focus of all tax policies continues to remain on attracting top-tier foreign investors. The unique Free Trade Areas have become part of the UAE’s edge as well as part of its economic tradition – one the government seeks to preserve so that the UAE continues to hold its privileged position.