In the United Arab Emirates (UAE), the tax system is unique compared to many other countries, with no personal income tax. However, employers do have certain tax responsibilities depending on the nationality of their employees.

Social Security Contributions

For UAE Nationals and GCC Citizens, employers in the UAE are required to contribute to a social security scheme. This contribution is a percentage of the employee's gross salary. The breakdown is as follows:

• Employee Contribution: 5%
• Employer Contribution: 12.5%
• Government Contribution: An additional 2.5% is contributed by the government

For Non-GCC Nationals, employers are not required to make social security contributions for employees who are not UAE nationals or GCC citizens.

This social security contribution has replaced the gratuity payment system that was previously in place. Employers are now required to make monthly contributions to a scheme instead of a lump sum gratuity payment at the end of employment.

Other Potential Taxes

The UAE introduced a flat rate corporate tax of 9% for businesses with net profits of AED 375,000 or more on June 1, 2023. This is a separate tax not related to payroll.

The UAE has a VAT rate of 5% that applies to most goods and services. However, this is a tax that businesses collect from their customers and remit to the government, not a direct employer tax.

In the United Arab Emirates, there is no personal income tax. This applies to salaries, wages, bonuses, income from self-employment, and most other standard types of income.

Social Security Contributions

For employees who are nationals of the UAE or other Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia), they do contribute to a social security scheme. The employee contribution is 5% of the gross salary.

End-of-Service Gratuity (for expats under old regulations)

It's important to note that a new Defined Employment Workplace Savings Scheme (DEWS) was introduced in February 2020. This system is meant to eventually replace the end-of-service gratuity for all employees. The end-of-service gratuity is a lump sum payment that employers are obligated to pay to expatriate employees when they end their employment, under certain conditions. The calculation is based on the employee's length of service and basic salary. This is mainly applicable to employees who started working before the DEWS system was introduced.

In the UAE, the majority of services are subject to the standard VAT rate of 5%. However, specific services qualify for a zero-rated VAT status. This means, while no VAT is charged to the customer, the business can still reclaim input VAT paid on related expenses. Zero-rated services often include exports of services outside the GCC, international transportation and related supplies, and certain education and healthcare services.

On the other hand, some services are entirely VAT-exempt. Businesses providing exempt services cannot recover input VAT. These may include certain financial services, residential real estate (except for the first sale), and local passenger transport.

VAT Filing Procedures

Businesses exceeding the mandatory VAT registration threshold (AED 375,000 in taxable supplies over the previous 12 months) must comply with the following VAT filing procedures in the UAE:

1. Registration: Register with the Federal Tax Authority (FTA) through their online portal.
2. Record Keeping: Maintain detailed and accurate records of sales, purchases, and VAT-related transactions.
3. VAT Returns: File VAT returns periodically, usually quarterly or monthly depending on your business turnover. Returns are filed online through the FTA portal.
4. VAT Payment: Pay any due VAT amounts to the FTA by the stipulated deadlines.

The UAE is known for its business-friendly environment, offering a range of tax incentives to attract investment and support economic growth. These incentives come in various forms and have different qualification criteria.

Corporate Tax Exemptions and Reductions

Small Business Relief: The UAE Corporate Tax (CT) Law provides tax relief for small businesses. Companies with taxable income up to AED 375,000 are taxed at a rate of 0%. Income above this threshold is subject to the standard 9% corporate tax rate. To qualify, the business must be tax resident in the UAE and have taxable income below the threshold. To claim the relief, businesses should consult with authorized tax advisors on how to properly calculate taxable income during tax filing.

Free Zone Incentives: Companies established in designated free zones within the UAE can enjoy benefits such as 100% foreign ownership, 0% corporate tax (typically for a specified period), 0% import and export duties, 0% personal income tax, and exemption from certain regulatory requirements. To qualify, businesses must be registered and operating within a designated free zone and meet the specific requirements of that zone. For information about company setup, licensing, and available incentives, businesses should contact the relevant free zone authority.

Research and Development (R&D) Incentives

The UAE encourages innovation by offering tax incentives for businesses investing in R&D. While specific details on qualification and benefits are still being developed, these could include tax credits or deductions for eligible R&D expenses and accelerated depreciation for R&D assets.

Other Potential Incentives

Loss Carry Forward: Businesses may be able to offset losses from previous years against taxable income in future years.

Group Tax Relief: Qualifying corporate groups may be able to consolidate their taxable income and losses for certain tax benefits.

The UAE's tax landscape is constantly evolving, so businesses should stay updated on the latest tax laws and incentives.