On the surface UAE is very enticing. For companies there is no corporation tax except for banks and oil companies. Additionally there is no withholding tax. For individuals there is no personal income tax at all. For foreign workers there are no social security taxes either for the employer (no payroll tax!) or the employee. So most companies and their employees won't be taxable in the Emirates.
However there are still some issues to be wary of, in particular tax in the home country of a company and individual. By utilising good tax planning you can ensure that double tax treaties and rules on tax residency work in your favour. If you want a local company to handle your tax, payroll and invoicing in UAE we have information about PEO services in UAE. Or maybe you'd like to work out your tax obligations in UAE yourself?
There are no taxes imposed on the income of companies resident in UAE, unless they are involved in oil & gas exporation or production, or they are a branch of a foreign bank. Oil and Gas companies are taxed at 50-55% whilst foreign bank branches are normally taxed at 20% although this may vary dependent on which of the 7 Emirates they are operating in.
However for a company to be resident in UAE it needs to be either 100% owned by Emirati residents or able to prove its property and income is not used for investment purposes.
UAE employers have to pay an Employer pension contribution of 12.5% of the gross salary of any local UAE employees. Foreign workers are exempt from this. Use our UAE Payroll Tax Calculator to work out your employer contributions.
There is no withholding tax in UAE at all. This means that dividends, interest, royalities, technical services, branch remittances, management and professional services are all exempt from withholding tax.
The emirates won't charge foreign workers any form of tax on the work they do in the Emirates. But the challenges come in dealing with potential taxes due in your home country. Double taxation is a pain and must be factored into your tax planning prior especially if you are a citizen of a country which taxes you on your worldwide income like the USA or Australia.
Read more about Expatriate Tax Planning in UAE here.
Foreign workers and their employers are exempt from Social Security contributions. For Emirati nationals there is an employee contribution of 5% of gross salary. This is in addition to the 12.5% their employer is contributing.
Getting advice on your home and away tax planning is highly recommended. Will you be able to claim tax residency in the Emirates? Do you need a local citizen to hold a majority share in your company to achieve this? What are the tax treaties which will affect your business? Are they still current? The last thing you want is to agree terms for your employees to work on a client site in Dubai only to find out down the track that they will be taxed at a much higher rate than you expected. The fallout is damaging for your company and potentially your client. Not to mention the angst it causes to the individuals with the tax bill. Similarly it helps to use a local specialist when setting up your branch to make sure it gets the right licenses and registrations including sponsoring work permits.
But the bigger picture for your employees and company will often require a tax specialist from your home country. Because the United Arab Emirates is a tax-free zone your local tax authorities may view profits or earnings from there differently. Additionally your employees may have to take steps to change their tax residency and get the full benefits of an assignment in Dubai. This may require them to rent out any property they own or can even be as simple as the wording they use on their immigration card.
If you have good inhouse expertise in international taxation or compliance it can be handy to do all the planning yourself. Given there is virtually no tax to deal with it can seem like an easy job. If you are able to incorporate with 100% foreign ownership and are able to get approval to sponsor work permits then the administration burden is pretty light compared to other countries in the region. Just be wary of the timeframes for dealing with local government and institutions - especially during Ramadan or Eid.
Companies that want to keep a light footprint in the UAE or are under time pressure often use a local Professional Employer Organization (also known as an Outsourced Employer or Umbrella Company) to deal with all in-country requirements. They can act as your local employer or agent. They are well established and have the necessary registrations, licenses and insurance to operate. They will sponsor your foreign employees or contractors on work permits, hire your staff onto their payroll, subcontract them to your end clients, run their payroll including making necessary deductions and tax submissions, issue payslips and even invoice your clients if need be.
This service gives great flexibility - you can get your staff on the ground quickly and even transfer them over to your local branch when it is setup. So you reduce the stress related to not knowing when your company will be ready. If you choose not to incorporate in UAE at all, then you'll totally avoid any dealings with the Emirati authorities.
We work with numerous service providers in UAE who can help with tax planning, company incorporation and running a local payroll. We can helpk you understand the services you may need, what you can safely do yourself and give you costs and timeframes so you can put project plans together. We also have a comprehensive knowledge of the different services our partners provide, and we can help you find the right company to help. Our advice is 100 percent free, and it comes with no obligations.