Taxes in Dubai — income tax

I’m dedicating this series to describing the reality of taxes in the UAE. There’s a lot of contradictory information online, especially in ads offering new businesses and services for new residents. This series will be written in layman’s terms from the perspective of a resident of the Emirates with 10 years of experience, an entrepreneur, and a mentor to entrepreneurs.

Taxes exist here — they just do a different job

It is not true that there are no taxes in the Emirates. There are many of them, and I will describe them here and in the posts that follow. The biggest difference is their function. In most countries, taxes feed the state treasury, which — in an ideal world — spends that money on maintaining everything held in common and used by citizens. They are collected on what we earn, on what we spend, and sometimes on what we own. Avoiding them is a crime, because living in that country means using services and goods the state pays for. Without taxes, most states cannot function.

Dubai does not depend on taxes to function. Here they have an organising function and are considerably lower. We have direct taxes — VAT at 5%, corporate tax at 9% and customs duty at 5% — but we also have charges that are better understood as compulsory official fees: they must be paid, but they are not called a tax.

There is no personal income tax

The most important tax in the world is income tax because it applies to everyone with income. In Poland, it’s called personal income tax. This tax doesn’t exist in the Emirates. It doesn’t, never has, and never will.

If you take up legal employment in the Emirates, you receive 100% of your salary in your bank account and can spend it on whatever you want. Individuals don’t have to maintain accounts, pay taxes, or prepare personal income tax returns. They don’t have to report their income to any authorities.

The employer of such a person covers the costs of obtaining a residence permit, insurance, and the cost of obtaining a work permit from the ministry. This cost amounts to almost AED 6,000 every two years, plus insurance depending on age and package. While this is optional in Dubai, it is mandatory in Abu Dhabi.

What is not taxed

There is no income tax, so if a person with a job or business, who is a resident of the Emirates, invests in real estate and rents it out or sells it at a higher price, it’s not taxable income. If they play the stock market and make a profit, it’s not taxable income. These three sources of income — salaried employment, real estate, and the stock market — are not taxed.

But be warned: in the Emirates, most commercial activities are prohibited without a service or trade licence.

If a person with a job wants to make dumplings, jewelry, offer website design, consultancy services, or anything else from home, they must have a business license, a company, a sole proprietorship, or a single-person LLC. There are types of personal income that are often overlooked by individuals, such as referral commissions to real estate agents, investment brokers, or salespeople. This income does not require a license and is not taxed.

What if you run a business and pay yourself a monthly salary? This is also tax-free income. You pay and file taxes as a business, but not as an individual.

So what does an individual actually pay?

The fact that tax is not deducted from your salary does not mean you are not paying it. Indirect taxes exist in the Emirates, and here are a few of them. For services and products in the Emirates we pay the business 5% VAT, which that company then has to settle with the Federal Tax Authority. Buying a property, we pay 4% of its value. There is no road tax, but there are high fines for traffic offences, fees for driving licences, and SALIK toll gates placed at strategic points — passing one costs AED 4, and driving from Dubai to Sharjah can cost AED 20 each way.

It is not a tax, but living in the UAE there are products far more expensive than in other countries, because bringing them here is expensive. There is no tax on rent, but on every water, electricity, AC and gas bill from the government provider, 80% of the amount is tax and 20% is consumption.

Official fees in countries with income tax are cheap because officials are funded by the state treasury. Here, for example, for getting married, making a will, obtaining a driver’s license, or certifying foreign documents at the local Ministry of Foreign Affairs, we pay significantly more than in Poland. Offices have satellite offices, based on franchises. AMER has access to immigration services, and almost anyone can open their own satellite office and process residency visas. Filing a lawsuit here is expensive, and we also pay significantly more for notary services and certifications. Starting a company in Poland doesn’t cost much, and we only pay once. Starting a company in the Emirates costs significantly more, and the fees are for a year. There are no health insurance premiums or government health insurance, so if something happens and we end up in the hospital, we pay 100% at the hospital or we pay for the insurance ourselves.

What the absence of income tax also removes

The lack of income tax also results in the lack of many benefits. We are not entitled to pensions or social benefits. If we end up in hospital without insurance, we pay out of pocket. If we lose our job, it’s our own problem. There are no subsidies for new businesses or subsidies for businesses during the crisis. All schools and universities for expats are subject to fees, and they are steep. An employee insurance initiative has been launched; it is mandatory for current employees, and in the event of job loss, we can receive several months of basic pay.