Tax in the UAE: the real framework, on both sides

The UAE tax regime comes down to three statements. The fourth is the one people forget.

There is no federal personal income tax. Salary, dividends, rent received in your own name, private capital gains: none of it is taxed in the UAE. Nor are there social security contributions for an expatriate employee in the private sector, as the UAE pension scheme covers nationals and citizens of the Gulf Cooperation Council. The flip side is rarely anticipated: you build up no pension rights locally.

Companies, on the other hand, are taxed. Since Federal Decree-Law No. 47 of 2022, the taxable profit of a company established in the UAE bears a tax at a nil rate up to a threshold and at 9% above it. The scale is marginal: crossing the threshold does not retroactively expose the whole profit.

VAT has existed since 2018, at 5%. It applies to most supplies made in the UAE by a registered business, with zero-rated supplies and exempt supplies that are not the same thing: the distinction decides your right to recover input VAT.

And there are local charges nobody mentions. The fee for registering a property transfer at the Dubai Land Department, around 4% of the recognised value, is one. The municipality housing fee, collected in monthly instalments on the electricity and water bill, is another: it is not called a tax, it is paid every month, and it surprises new arrivals every time.

The qualifying free zone regime — Qualifying Free Zone Person — allows qualifying income to be taxed at a nil rate. The conditions are cumulative: real economic substance in the UAE, income from activities on the list of qualifying activities, non-qualifying income kept under a cap, up-to-date transfer pricing documentation, and no election for the standard regime.

The case that comes up most often in our files: a free zone consulting company that invoices clients on the UAE mainland. That revenue is in principle not qualifying. Below the cap, the regime holds; above it, the company loses the nil rate, and not just for the current year. The choice between a free zone and the mainland is therefore made on the nature of your clients: see the free zone company in the UAE and the structure comparator.

This is the part of the subject that produces the most tax reassessments. Three qualifications overlap, and they are independent of one another.

A UAE residence permit is not UAE tax residence. The UAE has set its own criteria: your usual place of residence and the centre of your personal and economic interests in the UAE, or physical presence beyond a number of days over a twelve-month period, or a shorter presence combined with additional conditions relating to housing or work. A visa holder who spends most of the year elsewhere meets none of these criteria, and will not obtain a tax residency certificate.

UAE tax residence does not, by itself, end your tax residence in your home country. That country decides whether you are still tax resident there, by its own criteria, whatever the stamps in your passport say. What you keep there — a home, a business role, assets, family — can matter to that assessment, and only an adviser in that country can tell you how.

A tax treaty only comes into play afterwards. Where both states consider you resident, the treaty between them, if there is one, settles the question using a ranked series of criteria — permanent home, centre of vital interests, habitual abode, nationality. To rely on it, you must produce a UAE tax residency certificate. Without that document, the discussion does not take place.

In practice, a departure that holds is a documented departure: a lease in your name, utility bills, statements from a local account, proof of presence, and consistency between what your file says and what your calendar shows. On the day the authorities ask for them, these documents are the only thing that counts.