The United Arab Emirates is a federation of 7 Emirates, each of which has the autonomous power of the local government to impose income taxes or any other taxes. There is no federal income tax in UAE to the public or the businesses on their earnings.
The UAE lost its reputation as a tax-free country when it first introduced VAT (value-added taxes) in 2018. Although the government does not directly tax workers ‘ wages and profits of the organization, it has taxed the individual’s income in a secondary way.
There are two ways the governments dig into the individuals earning and takes a slice as the name of the income taxes.
- Primary taxes
- Primary taxes means that the person who is subject to the taxes pays directly from the income which is possible by pressing the tax office or using the digital payment system. for example; taxes over the profit of the organization and tax on the wages or salary, etc.
- secondary taxes
- The person subject to the tax does not pay directly, but other parties pay on behalf of the first person or the person liable for the tax. for example; VAT (value-added taxes).
Some countries, particularly developed nations’ residents, and organizations pay both taxes and save less, even though they earn more than other countries in the world.
Let’s talk about income tax in the UAE. Before January 2018, whether you work or business, whether you earn high or low, you didn’t have to pay a single cent of your money to the government. How much you would make and go back to your own country with your savings.
It was the main reason many expatriates, especially from the developed country, wanted to come to Dubai or UAE for work, still, the trends have not changed.
Is the UAE income tax-free country?
No, even if you do not pay taxes on your monthly salary or company income, you do pay taxes when you buy products from daily necessities to equipment that is used to operate your business.
In addition, you will pay 5% of government taxes in excess of the usual price of the products. We spend our money on the purchase of goods and services, but any item we buy or service we utilize has to pay 5% VAT.
Either way, some of your money goes to the government. UAE government tax doesn’t directly affect your income, but your spending on goods and services is going to rise, which is going to eat your revenue and long term saving.
What is the provision of vat in UAE?
- The business needs to register at tax if their taxable supplies and import exceeded the mandatory threshold. AED 37500.
- The organization need to register as taxes payable organization voluntarily if its supplies and importers fall less than the mandatory threshold but higher than the voluntary threshold of AED 175,000.
- Any organization’s annual business turnover is less than the voluntary threshold. It should registration within the 20 days by submitting the de-registration application.
Non-VAT applicable goods and services
- Exports the goods and services to countries outside the GCC;
- International transportation, and related supplies;
- Transportation through the sea or sky.
- Investment on precious metals (e.g. gold, silver, of 99% purity);
- Newly built residential buildings, which are first supplied within 3 years of their construction;
- the provision of certain education services and the supply of the goods and services concerned that
- procurement of other health care facilities and supply of the products and services involved in it.
VAT in UAE 2020-exemption goods and services
- The provision of other financial services
- Residential properties;
- Bare land; and Local passenger transport
Conclusion: Individuals or organizations will pay income tax in uae through the secondary way. Although it does not seem that you are paying taxes on your income, you will pay it indirectly through the value-added taxes on the consumption of goods and services.