Developing a sound understanding of a country’s tax policies is a prerequisite for starting a business there. The timely payment of taxes is necessary for running ethical operations and crucial budgetary concern for business owners too.
As far as Dubai is concerned, the taxes owed by a business depends on the nature of its activities, geographical zone and trading partners. In UAE, it’s also important to know what kinds of tax concessions are currently being offered to foreign investors and startup founders. This can impact what kind of organisational structure and location you choose when you start a business in Dubai.
In many cases, by setting up a company in one of Dubai’s free zones, you can avail of many tax concessions; however, some taxes will still apply. Below is a breakdown of the various tax regulations that apply to businesses set up in Dubai’s free zones and the mainland:
Corporate income tax: Most businesses registered in Dubai are not currently required to pay corporate income tax to the government. So far, corporate tax income is only limited to oil and gas production companies or those engaged in the extraction of natural resources. In some emirates, corporate income tax also applies to branches of foreign banks.
However, if these companies are located in Dubai’s free zones, they are likely to be exempt from paying corporate tax for a period of 15 to 50 years, depending on the free zone authority’s policies.
Value-added tax (VAT): Since it was introduced in the UAE in 2018, VAT applies to most goods and services at a 5% general rate.
However, some goods and services are exempt, which include international transportation, oil and gas supply, and some specific areas, such as healthcare, education, and certain residential property sales. Goods and services exported outside the VAT-implementing Gulf Cooperation Council (GCC) member states are also exempt, as are certain financial services.
Companies set up in Dubai’s free zones should check with their relevant authorities to determine the concessions offered to them. For most free zones, while transactions between free zone companies may be exempt, supply to goods and services to a free zone company is not and regular UAE VAT registration rules apply to that transaction.
In order for the VAT to be applicable to a business, it must have taxable supplies and imports in excess of AED375,000 per annum. Business with supplies and imports worth more than AED187,500 per annum may voluntarily register for VAT payment.
While goods imported into Dubai’s free zones are typically exempt from customs duties, a 5% customs duty of 5% applies to the cost, insurance, and freight value of imports in the mainland. For some goods such as alcohol and tobacco, other rates may apply.
In accordance with the GCC Customs Union regulations, no customs duties are levied on trade between the GCC member states.
Excise taxes: Excise tax applies to businesses that sell goods that are harmful to health or the environment. Therefore, an excise tax between the rates of 50% to 100% applies to products such as carbonated drinks, energy drinks, tobacco products, electronic smoking devices, liquids used in such devices, and sweetened drinks.
Decisive Zone is a business setup company helping you find the best-suited solution when establishing a company in UAE. Decisive Zone will advise you on the corporate structure and jurisdiction to choose from, while covering all technical, administrative and financial aspects of UAE business setup.