UAE Tax System and Regulatory Framework

The United Arab Emirates is widely recognized as a low-tax jurisdiction, reinforcing its appeal as a global business hub. Since the establishment of the Federal Tax Authority (FTA) under Federal Decree-Law No. 13 in 2016, the UAE has significantly strengthened its tax administration at the federal level. The FTA operates under a board chaired by the Minister of Finance, overseeing the implementation, collection, and enforcement of federal taxes. Over recent years, legislative milestones such as the introduction of the Value Added Tax (VAT) Law, Tax Procedures Law, and Excise Tax Law have formalized the structure around two key indirect taxes: VAT and excise duties.

A major development occurred in January 2022 when the Ministry of Finance announced the rollout of corporate income tax, effective from June 1, 2023. This marked a shift in the country’s fiscal landscape, broadening the scope of its taxation framework while maintaining competitiveness. For updated official information, visit the FTA website: www.tax.gov.ae/en/

Main Taxes and Rates in the UAE

Corporate Income Tax (CIT)

Corporate income tax in the UAE is calculated based on accounting profits and follows a tiered rate system introduced to support small and medium enterprises while ensuring large corporations contribute fairly:

• 0% for taxable income up to AED 375,000 (approximately USD 102,000)
• 9% for taxable income above AED 375,000
• A separate rate applies to multinational enterprises with global revenue exceeding EUR 750 million (about USD 850 million), aligned with international tax standards including OECD Pillar Two

It's important to note that certain sectors remain outside the federal CIT regime. Oil and gas producers, petrochemical firms, and foreign bank branches are subject to emirate-level levies. For instance, Dubai imposes a 55% tax on oil companies' profits—higher than the 50% rate in other emirates—alongside royalties defined in concession agreements, which can push total effective rates between 55% and 85%. Additionally, foreign banks repatriating profits in Abu Dhabi, Dubai, and Sharjah face a 20% profit remittance fee.

Tax exemptions are generous and strategically designed to attract investment. These include:

• Natural resource extraction companies operating under existing emirate-specific laws
• Free zone businesses enjoying zero corporate tax, provided they do not conduct business within the UAE mainland
• Exclusion of personal salaries, real estate capital gains, dividend income, bond yields, bank interest, and cross-border investment returns from federal taxation

Personal Income Tax

The UAE does not impose personal income tax on individuals, making it one of the most attractive destinations for expatriate professionals and high-net-worth individuals. Salaries, bonuses, and other employment-related earnings are fully tax-exempt at both federal and emirate levels.

Value Added Tax (VAT)

VAT was implemented across the UAE on January 1, 2018, at a standard rate of 5%, in alignment with the Gulf Cooperation Council (GCC) VAT framework agreement. It applies to most goods and services supplied domestically and to imports.

However, several categories benefit from zero-rating or full exemption:

• Zero-rated supplies: Exports of goods and services, international transport, education and healthcare services, supply of precious metals (gold, silver, platinum), newly constructed residential properties, and qualifying charitable buildings
• Exempt sectors: Certain financial services, local passenger transport, supply of bare land, and residential leasing

In May 2018, the UAE Cabinet exempted wholesale transactions involving diamonds and jewelry made from gold, platinum, and silver from VAT, supporting the growth of luxury retail and trade hubs like Dubai’s Gold Souk.

Excise Tax

The excise tax regime launched on October 1, 2017, targets specific goods deemed harmful to health or environment. Initially applied to tobacco products, carbonated drinks, and energy drinks, it was later expanded through Cabinet Resolution No. 52 of 2019 to include electronic smoking devices and sugary beverages.

Current excise tax rates are:

This policy reflects the UAE’s public health strategy to discourage consumption of unhealthy products while generating non-oil revenue.

Zakat (Religious Obligation)

Zakat, an Islamic religious duty meaning 'purification,' is one of the Five Pillars of Islam. While not a government-administered tax in the UAE, some reports indicate that Islamic financial institutions may be required to pay Zakat contributions to designated foundations. There have been discussions about potentially codifying these payments through amendments to future legislation, though no federal mandate currently exists for compulsory Zakat collection by the state.

Municipal Property Tax

Although there is no nationwide property tax, most emirates levy an annual municipal fee based on a percentage of the property’s rental value. Typical rates include:

• Residential units: 5%
• Commercial properties: 5%–10%
• Hospitality and entertainment venues such as hotels, restaurants, and cinemas also fall under this levy

These revenues support urban maintenance, infrastructure, and public services within each emirate.

Hotel and Tourism Fees

The hospitality sector contributes to tourism development through mandatory service charges and tourism levies. These vary by emirate and establishment type:

• Restaurants: 5%–10% surcharge
• Hotels: 10%–15% tourism fee, often combined with additional municipality and service charges totaling up to 20%

Dubai, a leading global tourism destination, uses these funds to enhance visitor experiences, maintain attractions, and promote sustainable tourism initiatives.

For businesses expanding into the UAE market, understanding this multi-layered tax environment is crucial. Strategic planning around free zones, compliance with VAT and excise regulations, and leveraging available incentives can significantly optimize operational efficiency. Companies looking to establish a presence abroad may consider partnering with SailGlobal, a trusted provider of overseas human resource solutions, offering end-to-end support in payroll, compliance, and talent management across the Middle East.