United Arab EmiratesTax Obligations Detailed

In the UAE, employers have various tax obligations, primarily concerning corporate taxes and social security contributions.

Corporate Tax

• Standard Rate: A 9% corporate tax applies to taxable income exceeding AED 375,000.
• Large MNEs (Domestic Minimum Top-up Tax): Starting January 1, 2025, multinational enterprises (MNEs) with global revenues exceeding €750 million (approximately $793 million USD as of today's date) in at least two of the four preceding financial years are subject to a 15% DMTT. This applies to profits earned within the UAE.
• Free Zones: Businesses in designated free zones remain exempt from corporate tax.

Social Security Contributions

• UAE Nationals: Employers contribute 12.5% of the employee's gross salary towards social security (increased to 15% in Abu Dhabi). Employees contribute 5% (5% in Abu Dhabi as well). Contributions are calculated on a monthly salary range between AED 1,000 and AED 50,000.
• Other GCC Nationals: Contributions are subject to their respective home country's regulations.
• Expatriates (Non-GCC Nationals): Exempt from social security contributions. However, they are entitled to end-of-service gratuity calculated according to their length of service.

Other Taxes

• Value-Added Tax (VAT): A standard 5% VAT applies to most goods and services. Certain goods and services like exports, international transportation, and precious metals may be zero-rated.
• Payroll Tax: No payroll tax exists in the UAE.
• Capital Duty/Real Property Tax: Neither capital duty nor real property tax exists. Nominal registration/notary or attestation fees may apply in certain situations.

It's important to note that this information is current as of today, February 5, 2025, and might be subject to change. Consulting with a tax professional is recommended for the most up-to-date and specific advice.

The UAE boasts a tax-friendly environment with no personal income tax. However, specific deductions and contributions apply, primarily for UAE nationals.

Social Security Contributions

• UAE Nationals: Contribute 5% of their salary towards social security. Employers contribute an additional 12.5%, with the government adding 2.5%, totaling 20%. In Abu Dhabi, the total contribution is higher, at 26%, with the employer and government contributing more.
• Expatriates: Are not required to make social security contributions.

Pension Contributions

• UAE Nationals: Mandatory pension contributions apply. While specific rates can vary based on years of service and other factors, general guidelines include 5.83% of the basic monthly salary for those with less than five years of service and 8.33% for those with five or more years of service. The employer also makes contributions.
• Expatriates: Not subject to mandatory pension contributions in the UAE.

Other Deductions

Several other deductions can apply, including:

• Health insurance premiums (if applicable and cost-shared).
• Salary advances or loans.
• Fines or penalties as per UAE labor law.

Corporate Tax

• A 9% corporate tax has been in effect since June 1, 2023, applicable to businesses exceeding a profit threshold of AED 375,000.

It is important to note that this information is current as of February 5, 2025, and might be subject to change due to legal or regulatory updates. Consulting with a tax professional for the latest information and personalized advice is always recommended. Further, while personal income tax does not exist, other taxes, like the corporate tax, may indirectly impact an individual's overall financial situation. Lastly, specific regulations can vary between emirates, such as the higher social security contribution rates in Abu Dhabi. Staying informed about these nuances is crucial for accurate financial planning and compliance.

The UAE levies a 5% Value Added Tax (VAT) on most goods and services.

VAT Rates and Applicability

• Standard Rate: 5% on most goods and services.
• Zero Rate: 0% on exports outside the GCC, international transport, crude oil/natural gas, first supply of residential real estate, and certain healthcare and education services. Also applies to individuals present in the UAE for less than one month, if their presence isn't substantially linked to the supply.
• Exempt: Certain financial services (those without explicit fees like loan interest), subsequent supply of residential real estate, bare land, and domestic passenger transport. Transactions within designated free zones may also be exempt.

VAT Registration

• Mandatory: Businesses with annual taxable supplies and imports exceeding AED 375,000.
• Voluntary: Businesses with supplies/imports or expenses between AED 187,500 and AED 375,000.
• Non-resident: Businesses making taxable supplies in the UAE must register, regardless of revenue.
• VAT Grouping: Permitted under specific conditions for related businesses.

VAT Filing and Payment

• Frequency: Typically quarterly, but can be monthly based on FTA allocation (for businesses exceeding AED 150 Million annual turnover).
• Deadline: 28th of the month following the reporting period.
• Method: Electronically via the FTA portal.
• Penalties: AED 1,000 for missed deadlines (AED 2,000 for repeat offenses within 24 months), plus 2% initial penalty interest on late payments, increasing by 4% each subsequent month.

Tax Invoices and Records

• Registered businesses must issue tax invoices for taxable supplies.
• Maintain comprehensive financial records, including bank statements, invoices, credit/debit notes, and import/export documentation.

Exempt Supplies Examples:

• Financial Services: Loan interest, certain insurance policies without explicit fees.
• Real Estate: Residential property rentals (excluding first sale), bare land.
• Transportation: Local passenger transport within the UAE (buses, taxis, intra-city flights).
• Healthcare and Education: Specific services may be exempt. Further clarification is available in UAE VAT legislation.

Zero-rated Supply Examples:

• Exports: Goods and services exported outside the GCC member states.
• International Transport: Transporting goods or passengers internationally.
• Oil & Gas: Supply of crude oil and natural gas.
• Residential Property: First sale of new residential properties.
• Precious Metals: Gold, silver, platinum, and palladium (99% purity or higher).

Input Tax Recovery

Businesses can reclaim input VAT paid on purchases, subject to specific procedures and documentation requirements. However, reclaiming isn't possible for exempt supplies.

Recent VAT Law Amendments

As of February 5, 2025, recent amendments include a formal definition of the “eInvoicing system”, granting authority to the Ministry of Finance for its implementation. The definitions of "tax invoice" and "tax credit note" have been expanded to encompass electronic versions. These changes aim to streamline and automate invoicing processes. Further legislation regarding e-invoicing is anticipated by Q2 2025, focusing on B2B and B2G operations with a planned phased implementation starting in July 2026.

It's important to consult the latest official resources and seek professional advice for specific circumstances, as VAT regulations can be complex and are subject to change. This information is current as of February 5, 2025, and may be subject to updates.

The UAE offers a range of tax incentives designed to attract investment and stimulate economic growth.

Corporate Tax Incentives

• Small Business Relief: Businesses with annual revenue under AED 3 million are exempt from corporate tax. This relief is currently available until the end of 2026.
• Free Zone Benefits: Qualifying Free Zone Persons (QFZPs) operating within designated free zones can benefit from a 0% corporate tax rate on qualifying income, provided they meet specific operational, economic substance, and activity requirements. Free zones offer additional benefits like renewable tax holidays (15-50 years), no restrictions on foreign ownership or capital repatriation, and exemption from import duties.
• Business Restructuring Relief: This relief minimizes tax liabilities for companies undergoing mergers, acquisitions, or other restructuring activities that meet specific conditions, such as involving a transfer of assets or ownership for equity, not cash.
• Foreign Tax Credits: These credits help companies minimize their tax burden on international transactions.
• Loss Carry Forward: Businesses can offset future profits against previous losses.

Proposed Tax Incentives (as of February 5, 2025)

• Research and Development (R&D) Tax Incentive: A refundable tax credit of 30-50% is proposed for qualifying R&D activities conducted within the UAE, aligned with OECD guidelines. This incentive is expected to be effective from January 1, 2026.

• High-Value Employment Activities: A refundable tax credit is proposed for companies hiring employees in high-value roles (including C-suite executives), calculated as a percentage of eligible salary costs. This credit is anticipated to be effective from January 1, 2025.

Domestic Minimum Top-up Tax (DMTT)

Effective from January 1, 2025, a 15% DMTT applies to multinational enterprises (MNEs) with consolidated global revenues of EUR 750 million or more in at least two of the four preceding financial years. This aligns the UAE with the OECD's Pillar Two global minimum tax framework.

Other Tax Considerations

No Personal Income Tax:* The UAE does not impose tax on personal income from salaries, investments, rental income, or other sources.

Value Added Tax (VAT):* A 5% VAT applies to most goods and services.

Excise Tax:* An excise tax is levied on specific goods deemed harmful to health.

This information is current as of February 5, 2025, and may be subject to change. Always consult with a tax professional for the most up-to-date advice and personalized guidance.