The United Arab Emirates provides abundant services to its citizens and residents of its land, as it always seeks to provide a luxurious and generous lifestyle, and in exchange for these services, taxes are paid to a specific entity, which is the Federal Tax Authority that seeks to organize and facilitate the tax system in the Emirates and impose it on individuals and companies.
In this article, we will shed light on the tax law in the UAE and the types of taxes in the Emirates to save you the trouble of research and make it easier for you to understand the tax law in the UAE more clearly.
Why is the tax imposed in UAE
Have you ever wondered about the reason for imposing taxes in the country? Well, we will answer your questions in this section!
The United Arab Emirates imposes several economic systems in order to diversify its revenues to finance public expenditures, as taxes are one of the most important modern global systems of the economy, which aim to redistribute wealth or enhance or stop a behavior.
Tax revenues are used to finance hospitals, schools, parks and paving roads. Taxes take two forms, indirect and direct taxes. Taxes are one of the main sources of state revenue, apart from oil, which is the main source of revenue in the United Arab Emirates.
It should be noted that the Federal Tax Authority website is the first and official tax site in the Emirates, where you can refer to it to obtain any information about taxes in the Emirates.
Types of tax in the UAE
The UAE depends for its revenues on indirect tax, which is concerned with government purchases and transactions, and among the types of taxes in the Emirates:
- Value-added tax in the UAE
- Excise tax
- Income tax in the Emirates
- Corporate tax
- Taxes in tourist facilities
Value Added Tax (VAT)
The value-added tax law was implemented in the UAE on January 1, 2018. The UAE VAT law is defined as indirect and is imposed on most goods in transactions related to the supply of goods and services, as the tax is applied to each stage of the supply. It should be noted that the basic rate of the added tax is 5%, and it is borne by the final consumer.
The added tax is a new source of income in the UAE, and it contributes to ensuring the continuation of high-quality government services. The added tax also fulfills the UAE’s vision of reducing dependence on oil. We’ll give you an example of how value added works.
For example, a date farm produces packages of dates worth 100 dirhams per package, where the producer must pay a value-added tax of 5% to the Federal Tax Authority, and when the data package is sold to a factory and the factory produces something like date molasses in this case and sells the product For the supplier with a value of AED 200, the manufacturer must pay 5%, and the manufacturer has the right to request a refund of the value-added tax in the UAE that was paid by the first producer, and so, the tax is refunded in the UAE until it reaches the final consumer.
It is necessary to register for value-added tax in the UAE if imports exceed the mandatory limit of 375,000 thousand dirhams, and it is also possible to register for value-added tax in the UAE optionally if imports amount to 187,500 thousand dirhams.
It should be noted that goods exempt from value-added tax in the UAE are not food commodities, but are limited to real estate, vacant lands, public transport, and some financial services.
The United Arab Emirates imposed selective tax in the last quarter of 2017, with the aim of limiting consumption of goods that harm human health or the environment. Excise tax is one of the indirect taxes imposed on some goods, as the tax rate varies according to the type of commodity, and the goods have been classified as follows:
- Soft and sweetened drinks
- Energy Drinks
- Tobacco and smoke, including liquids used in electronic smoking devices
As for the excise tax rate, it is as follows:
- Cigarette tax in the UAE: 100%
- Energy drinks tax: 100%
- Soft drinks: 50%
Income tax in UAE
One of the things that distinguishes the United Arab Emirates is that it does not impose an income tax on individuals, which increases the advantages of housing in the Emirates and promotes investment in the country.
Since the UAE always seeks to encourage investment, it does not impose taxes on companies except for oil companies and foreign banks, as companies provide support by adhering to well-studied controls and laws related to freehold, taxes and employment.
Taxes on tourist facilities
The state imposes several tourism taxes on restaurants, hotels, hotel apartments and resorts, as follows:
- 10% on the room rate
- 10% service fee
- 10% municipality fee
- City tax (ranging from 6 to 10%)
- 6% tourism fee