United Arab Emirates: Business Environment
Branches of foreign banks are taxed at 20% in most Emirates.
Deductions are determined based on accounting principles and the tax decrees of the various Emirates. Expenditures that are not of a capital nature and are incurred wholly and exclusively for the purposes of the business are generally deductible.
Companies can deduct up to 50% of the expenses incurred for entertaining customers, shareholders, suppliers, and other business partners, including costs for meals, accommodation, transportation, admission fees, entertainment facilities, and equipment, as well as any other expenses specified by a Cabinet decision.
The deduction of net interest expenses is limited to 30% of tax-adjusted EBITDA. However, this exemption does not apply if the net interest expense for the relevant tax period remains below the AED 12 million threshold. If the threshold is surpassed, the taxpayer can deduct the higher of either the threshold or 30% of EBITDA.
Non-deductible expenses include fines, penalties (excluding compensation for breach of contract), bribes or illicit payments, donations made to entities that are not Qualifying Public Benefit Entities, dividends/profit distribution, CT, recoverable VAT, taxes imposed outside the UAE, and any other expenses specified in a Cabinet decision.
A business is permitted to offset tax losses against the taxable income of future tax periods when computing the taxable income for that period. However, during any tax period, the set-off amount cannot exceed 75% of the taxable income for that specific period. Any remaining tax losses can be carried forward indefinitely to subsequent tax years.
The United Arab Emirates has a social security regime applicable solely to qualifying UAE and other GCC national employees, exempting non-GCC nationals. For UAE nationals (excluding Abu Dhabi), contributions are 20% of gross remuneration, with 5% paid by the employee, 12.5% by the employer, and an additional 2.5% from the government. In Abu Dhabi, the rate is 26%, with the employer contributing 15%, the government 6%, and the employee 5%. Contributions are capped between AED 1,000 and AED 50,000. Free Zone employees are also subject to social security obligations. Other GCC nationals follow the social security regulations of their home countries.
Most Emirates have hotel levies, which are charged on hotel room rental, services, and entertainment, administered differently in each Emirate. In Dubai, guests and hotel apartment tenants pay a Tourism Dirham fee ranging from AED 7 to AED 20 per room per night based on the hotel's star classification. In Abu Dhabi, hotels charge a tourism fee of 6% of the room rental and a destination fee of AED 15 per night. Dubai hotels also apply a 7% municipality fee on sales, while Abu Dhabi imposes a 4% municipality fee. Additionally, all Emirates charge a 10% service charge on hotel sale revenue.
United Arab Emirates | Middle East & North Africa | United States | Germany | |
Number of Payments of Taxes per Year | 5.0 | 20.8 | 10.6 | 9.0 |
Time Taken For Administrative Formalities (Hours) | 116.0 | 204.0 | 175.0 | 218.0 |
Total Share of Taxes (% of Profit) | 15.9 | 32.1 | 36.6 | 48.8 |
Source: Doing Business, Latest available data.
No personal tax is levied | N/A |
Most Emirates impose a rental tax | Residential tenants pay 5% of annual rent and commercial tenants pay 5% of annual rent in Dubai. Expat tenants pay 3% of annual rent whereas UAE citizens do not pay any rental tax in Abu Dhabi. All tenants pay 2% of annual rent as rental tax in Sharjah. |
Real property tax | A transfer charge is levied on the transfer of real estate in the UAE (4% in the Emirate of Dubai, borne equally by the buyer and the seller). |
Non-GCC national employees who completed at least one year of service are entitled to an end-of-service benefit calculated as 21 days per year of basic wages for the first five years of employment, plus 30 days per year of the basic wage for each additional year of service (capped at two years’ remuneration).
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Latest Update: November 2024