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It was introduced in the United Arab Emirates on January 1, 2018. The general VAT rate is 5% and applies to most goods and services. However, certain goods and services are subject to a 0% rate or a VAT exemption.
0% type: It applies to:
◦ Goods and services exported outside the member States of the Gulf Cooperation Council (GCC) that apply VAT.
◦ International transport.
◦ Crude oil and natural gas supply
◦ First delivery of residential real estate.
◦ Specific areas such as healthcare and education
Exemptions: They apply to:
◦ Specific financial services.
◦ Subsequent supply of residential real estate.
◦ Unbuilt land transactions.
◦ Domestic passenger transport.
In addition, according to the Decision of the Council of Ministers of June 4, 2020, a person will be considered “out of the State” for the purpose of applying the zero rate to the export of services if their presence in the country is of short duration (less than a month) and is not actually related to the supply.
Resident Companies:
◦ Mandatory registration threshold: 375,000 AED.
◦ Voluntary registration threshold: AED 187,500.
Non-Resident Companies: There is no registration threshold; VAT must be applied at
all deliveries subject to VAT in the UAE.
• Grouping for VAT purposes: Provided that certain conditions are met.
• Specific Documentation and Registration: Includes the issuance of tax invoices and the filing of VAT returns (quarterly or monthly, as assigned by the Federal Tax Authority [FTA]).
The excess VAT incurred can be claimed from the FTA through a specific procedure. Alternatively, VAT credits can be carried over and deducted from the VAT charged in the future.
Companies that fail to comply with VAT tax obligations can face fixed fines and coercive sanctions.
A general customs duty of 5% is imposed on the cost, insurance and transport value of imports. However, different types may apply to specific goods, such as alcohol and tobacco, and exemptions or reliefs may be granted in certain cases. In addition, the UAE imposes anti-dumping duties on certain goods, such as car batteries, ceramic and porcelain tiles, and hydraulic cement. The types of anti-dumping duties vary depending on the Harmonized System (HS) codes and the country of export or origin.
GCC Customs Union: They are part of the Customs Union of the Gulf Cooperation Council (GCC), established in 2003 to eliminate customs and trade barriers between member States. Customs duties do not apply to trade between GCC member States, subject to certain conditions.
Free Trade Agreements: They grant duty-free imports for most goods originating in countries that are part of the Greater Arab Free Trade Agreement, Singapore, the European Free Trade Association (Norway, Switzerland, Iceland and Liechtenstein), Israel and India.
Free Trade Zones: Although free zones in the UAE are located within the national territory, they are considered to be outside the scope of the customs territory. Goods imported into free zones are not subject to customs duties, and these duties are suspended until the goods are introduced into the local GCC market.
On October 1, 2017, they introduced a special tax on certain products, including tobacco and related products, carbonated drinks and energy drinks. As of December 1, 2019, the scope of the excise tax was expanded to include sugary beverages, electronic smoking devices and tools, as well as the liquids used in these devices.
Applicable Tax Rates:
100%:
◦ Tobacco and tobacco products.
◦ Electronic devices and tools for smoking.
◦ Liquids used in electronic smoking devices and tools.
◦ Energy drinks.
50%:
◦ Carbonated drinks.
◦ Sugary drinks.
Municipal or Property Tax
In most of the United Arab Emirates, a municipal property tax is imposed, which is generally calculated based on the annual rent value. This tax is usually paid by tenants, although in some cases, both tenants and landlords must pay separate fees.
Examples of Tax Application in Dubai:
◦ Commercial Real Estate: 2.5% of the annual rental value, paid by
landlords.
◦ Residential Real Estate: 5% of the annual rental value, paid by
tenants.
In addition, a registration fee may apply for the transfer of ownership of land or immovable property. In Dubai, for example, a registration fee of 4% of the property's market value is charged. This rate can also apply to the direct or indirect transfer of shares in an entity that owns real property.
Estates related to property are imposed and administered differently in each emirate.
It does not currently exist in the UAE.
There is currently no personal income tax, so employers are not required to withhold taxes from their employees' payroll.
In the UAE, the social security scheme applies only to employees who are nationals of the UAE and other Gulf Cooperation Council (GCC) countries who meet established requirements. Workers who are not nationals of the GCC are not subject to this social security scheme.
Contribution for domestic employees (with the exception of employees in Abu Dhabi):
- Total rate: 20% of the employee's gross compensation.
- Distribution: 5% is borne by the worker, 12.5% by the employer and an additional 2.5% by the State.
In Abu Dhabi:
- Total type: 26%:
- Distribution: 5% is borne by the worker, 15% by the employer and an additional 5% by the State.
Contributions are subject to a statutory minimum and maximum wage of AED 1,000 and AED 50,000, respectively.
For other GCC nationals working in the United Arab Emirates, social security contributions are determined in accordance with the social security regulations of their country of origin. The employer is responsible for withholding and remitting employees' social security contributions together with the employer's share.
On February 1, 2020, a DIFC Workplace Employee Savings Plan (DEWS) was launched:
- Objective: to protect employees' long-term savings.
- Contributions:
Employers must make monthly contributions to the DEWS or to a regulated alternative plan that meets the requirements.
- The contribution percentage is 5.83% or 8.33% of the employee's base salary, depending on the worker's seniority.
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