Taxation in UAE
Jay Krishnan, Partner
UAE is basically known to be tax-free country, and this was true to a great extent, until the introduction of Value added tax. VAT was introduced in UAE on 1st January 2018 at a standard rate of 5 percent.
Apart from VAT in UAE, there are certain other forms of tax that one should be aware of.
Property tax/ fee
The property registration fee in UAE is 4 percent on the purchase price. For commercial sector, this has to be paid by the buyer and an additional 5 percent VAT is also applicable. In the case of residential sectors that are ready for occupation, as a general practice, the fee of 4 percentage will be split 2 per cent each between the buyer and seller.
However, the transfer of properties between close relatives are charged at a nominal value which ranges from 0.5 – 0.75 percentage.
Excise tax is levied on specific goods that are harmful to human health or the environment. The excise goods that will be charged tax in the UAE include;
- Carbonated drinks
This includes any aerated beverage and any concentrations, powder, gel, or extracts intended to be made into an aerated beverage. Unflavoured aerated water is exempted.
- Energy drinks
Any beverages which are marketed, or sold as an energy drink, and contains stimulant substances that provide mental and physical stimulation or includes caffeine, taurine, ginseng and guarana, will fall in this category. Substances that have similar effects as the ones mentioned above and any concentrations, powder, gel or extracts intended to be made into an energy enhancing drink will also be levied tax.
Tobacco and tobacco products are also categorized as excise goods.
Rate of excise tax
The rates of excise tax in the UAE are;
- 50 per cent for carbonated drinks
- 100 per cent for tobacco products
- 100 per cent for energy drinks.
Excise tax intends to reduce the consumption of unhealthy and harmful commodities. Businesses that are engaged in any of the below activities must register for excise tax;
- The import of excise goods into the UAE
- The production of excise goods, wherein the goods are released for consumption in the UAE
- The stockpiling of excise goods in the UAE in certain cases
Also, anyone who is responsible for overseeing an excise warehouse or designated zone i.e. a warehouse keeper should register for excise tax.
If you are on a vacation and planning to stay in any of the hotels in UAE, do not forget to check the tax charges. Certain restaurants, hotels, hotel apartments, resorts etc. in the UAE charge tax. Hotels charge a ‘Tourism Dirham Fee’ per room per night of occupancy in Dubai and the price range from AED 7 to 20 depending on the category/grade of the hotel.
Whereas in Abu Dhabi, a fee of 4 percent of hotel stay bill and AED 15 per night per room will be levied.
In Ras Al Khaimah, hotels charge AED 15 tourism fee per room per night.
The UAE charges corporate tax on oil companies and foreign banks and rest of the industries are exempted. Companies functioning in UAE free zones doesn’t have to pay corporate tax for a specific period.
Unlike many other countries, UAE individuals are exempted from paying income tax.
If you are someone planning to start a business in UAE or going on a vacation to the country, basic knowledge on taxation is a must
Impact of Recent UAE VAT Amendment on Companies dealing in Hydrocarbons
In place of any hydrocarbons, the amendment clarifies that the reverse charge mechanism will only apply to Pure hydrocarbons.
UAE VAT Law Amendment Effective from 01.01.2023
On September 26, 2022, President His Highness Sheikh Mohamed bin Zayed Al Nahyan issued the Federal Decree-Law No.18 of 2022,
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