United Arab Emirates taxes: Guide for US expats

The UAE has a global reputation as a tax-free haven, making it a magnet for expats from all countries. But here's the thing: the tax picture isn't as simple as it seems.

Sure, there's no income tax in the UAE. But for US citizens and many other expats, that doesn't mean you're tax-free. Your home country may still require you to report, and in some cases, pay taxes on your income.

In this guide, we'll cover all of this in more detail. We'll look at what it means to be a UAE resident, the basic tax rules, and how they affect expats. Let's dive into the topic.

Overview of UAE

Who is considered a resident of the UAE?

In the UAE, residency is all about your visa. It's not the same as tax residency in other countries. If you're an expat working in Dubai or Abu Dhabi, you probably have an employment or investor visa. That's what gives you the legal right to live here.

Now here's the interesting part: unlike many places, the UAE does not charge income tax to its residents. That's a big reason why so many people are drawn here. But there have been some updates, such as the introduction of corporate taxes, which have put more focus on the definition of residency - especially for businesses.

So what does it take to be considered a resident of the UAE?

• You must spend at least 183 days per year in the UAE.
• Hold a valid residency visa.
• Prove that your primary residence and financial ties are here.

But there's a catch. Even if you're a UAE resident, your home country may still consider you a tax resident. This can lead to double taxation - something expats need to be aware of.

Does the United Arab Emirates have taxes?

The UAE's tax-free reputation is legendary. It's one of the main reasons expats and businesses flock here. For years, there's been no personal income tax or capital gains tax - making it a financial haven for many.

But things are starting to change. While individuals still enjoy a tax-free salary, the UAE has introduced indirect taxes and corporate tax rules over time. These changes reflect a growing, modern economy that is adapting to global trends.

Is the UAE tax-free for foreigners?

Yes, the UAE is largely tax-free for foreigners, especially when it comes to personal income and capital gains. That's a big reason why millions of expats move here - to enjoy more financial freedom and make the most of their earnings.

But let's be clear: "Tax-free" doesn't mean there are no taxes at all. Here's what you need to know:

• Everyday life includes VAT (5%) and excise taxes on certain products such as sugary drinks or tobacco.
• If you're a US citizen, you still need to report your worldwide income and may owe taxes back home.
• Companies owned by foreigners in Dubai may now be subject to a 9% corporate tax, depending on their profits and where they operate.

Types of taxes in the UAE

Value-Added Tax (VAT)

The UAE introduced a 5% value-added tax on January 1, 2018. It applies to most goods and services, including everyday expenses such as shopping, eating out, and utilities.

The good news? Essentials like healthcare, education, and public transportation are either zero-rated or exempt, so they won't add to your costs.
Here's how VAT works for businesses:

• Businesses must register for VAT if their annual taxable supplies exceed AED 375,000.
• Those earning between AED 187,500 and AED 375,000 can register voluntarily.

Some items are taxed at 0%, including:

• Exports and international transportation
• Investment metals (such as gold and silver)
• Newly built residential properties
• Health and education services

For US expats, VAT is the primary tax you'll encounter in the UAE. While it's relatively low compared to other countries, it's worth factoring into your cost of living.

Corporate tax

In 2023, the UAE underwent a big change when the corporate tax system was introduced. Here's what you need to know:

• Companies earning more than AED 375,000 (about $102,000) a year will now be subject to a 9% corporate tax rate.
• Companies involved in oil and gas exploration and production are taxed at a progressive rate of up to 55%.
• Branches of foreign banks are taxed at a flat rate of 20%.
• Companies located in free zones may continue to benefit from tax incentives, but only if they meet certain regulatory requirements.
• Multinational companies operating in the UAE must comply with the OECD's global minimum tax rules.

This move brings the UAE in line with international tax practices while keeping it competitive and attractive to do business.

Property tax

There is no traditional property tax in the UAE, but there are a few property-related fees you should be aware of:

• Property registration fees: Typically 4% of the property's value, these are paid during the transaction process.
• Annual maintenance fees: Property owners pay these fees to maintain common areas in residential or commercial buildings.
• Rental income tax: There isn't one. That's right - rental income is untaxed, making the UAE a prime location for real estate investors.

These costs are far lower than property taxes in many other countries, which is why Dubai remains a top choice for real estate investment.

Capital gains tax

There is no capital gains tax in the UAE - not for individuals or companies.
Here's what that means:

• No local tax: Whether you're selling real estate, stocks, or other investments in the UAE, there's no capital gains tax to worry about.
• For US citizens: Here's where it gets tricky. If you're an American expat, any capital gains you earn in Dubai are still subject to US tax because of global income reporting rules.

Excise tax

The excise tax, introduced in 2017, is designed to encourage healthy lifestyles and increase government revenue.
This tax targets products deemed harmful to health or the environment, including:

• Tobacco products: 100% tax.
• Sweetened beverages: 50% tax.
• Energy drinks: 100% tax.

If you're a fan of sugary sodas or energy drinks, expect to have to pay more. While this tax may not affect everyone's daily life, it's worth considering in your budget when buying certain products.

Dubai vs. Abu Dhabi: Tax differences and similarities

Dubai and Abu Dhabi are the two centers of the UAE, and while they share many similarities in tax policy, there are a few key differences that are worth noting - especially for expats and entrepreneurs.

What's the same?

• Both emirates follow the UAE's national policy of no personal income tax.
• VAT of 5% applies in all emirates, including Dubai and Abu Dhabi.
• The upcoming 9% corporate tax is set by the federal government and applies to companies nationwide, with exemptions for certain free zone businesses.

What’s different?

Real estate fees:

• In Dubai, real estate transfer fees are 4% of the property's value.
• In Abu Dhabi, they are lower at around 2%.

Free zones:

• Dubai has many free zones that cater to different industries and offer attractive incentives.
• Abu Dhabi also has free zones, but they tend to be more focused on government industries such as energy and defense.

Although not a tax, the cost of living - especially housing - is higher in Abu Dhabi, which can affect your finances as an expat.

US taxes for Americans living in the UAE

Living in the UAE offers a tax-free personal income environment, but US citizens and green card holders must still comply with US tax laws, which include strict reporting requirements.

Despite the UAE's tax-free policies, US citizens must comply with the following requirements

• Worldwide income reporting
  All worldwide income must be reported on your US tax return (Form 1040), regardless of where it's earned.
  
  You may be eligible for the Foreign Earned Income Exclusion (Form 2555), which allows you to exclude up to $120,000+ of foreign-earned income, or the Foreign Tax Credit (FTC) to offset taxes paid in other countries.
• Foreign Bank Account Report (FBAR)
  If the total balance of your foreign bank accounts exceeds $10,000 at any time during the year, you must file an FBAR (FinCEN Form 114). Failure to comply can result in severe penalties.
• FATCA (Foreign Account Tax Compliance Act)
  Expats must also report certain foreign financial assets if they exceed certain thresholds (e.g., $200,000 for single expatriate filers) by filing Form 8938.

While the UAE offers incredible local tax exemptions, your US obligations don't go away. Compliance with FBAR, FATCA, and global income reporting rules is critical to avoid penalties and ensure peace of mind. For expats, professional tax advice can make navigating these requirements much easier.

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Important deadlines for US taxes

• April 15 - Although expatriates receive automatic extensions until June 15, if taxes are owed, interest begins to accrue on April 15.
• June 15 - US expatriate taxes are due unless you have filed for and received an extension.
• June 30 - The FBAR form is due.
• October 15 - If you have received an extension, your expatriate taxes are due on this date.

Does the US have a tax treaty with the United Arab Emirates?

The United States does not have a tax treaty with the United Arab Emirates. Tax treaties are designed to prevent double taxation and clarify how cross-border income is taxed.

At first glance, the lack of a treaty may seem like a disadvantage for US citizens living in the UAE. However, the UAE's tax-free personal income policy makes up for this. With no local income tax, the chances of double taxation are minimal - most concerns arise from US tax obligations.

For Americans, the real focus should be on compliance with US tax laws, such as reporting worldwide income and taking advantage of benefits such as the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC) where applicable.

Conclusion

The UAE's tax-free income policies and exceptional lifestyle make it a top choice for expats, including Americans. It's a place where financial opportunity meets world-class amenities.

However, the lack of a tax treaty with the US can complicate matters when it comes to managing your tax obligations.

With the right planning, you can keep the burden low and enjoy everything the UAE has to offer.

That's where we come in. At Taxes for Expats, we specialize in helping Americans navigate the complexities of expatriate taxes. With over 20 years of experience and more than 50,000 returns filed, our team provides the personalized service you need to stay compliant and worry-free.

Ready to simplify your expat taxes? Let's work together to make your move to the UAE as seamless as possible.