Tax Guide for Americans in the UAE
There are almost 8 million expatriates in the United Arab Emirates. This is not surprising for an internationally recognized financial and commercial center in the Mideast. Although the UAE promotes itself as having low taxes, expatriate Americans are still subject to United States expat taxes regardless of where they live, so this reduces slightly the appeal of living in the UAE. Keep reading to begin to understand how your taxes are affected by living in the UAE as an expat.
US Expat Taxes - UAE
US citizens, as well as permanent residents, are required to file expatriate tax returns with the US federal government every year regardless of where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets which are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is among only a few governments who tax international income earned by their citizens, as well as permanent residents, residing overseas. There are, however, some provisions that help protect from possible double taxation. These include:
- The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD 105,900 (this amount is for 2024 taxes) in earned income from foreign sources.
- A tax credit allowing tax on remaining income to be reduced based on the taxes paid to foreign governments.
- An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
Preparing a quality tax return following proper tax planning should allow one to use these, as well as other strategies, in minimizing or possibly eliminating tax liability. Note that in most cases the filing of a tax return is required, even if taxes are not owed.
Tax Rates for the UAE
There is not a federal tax in the UAE - not a corporate tax, not an income tax, not a capital gains or sales tax, and so there is no income withholding. Some businesses, such as petroleum and finance, are taxed - but most corporations are exempt.
Value Added Tax in UAE
Value Added Tax (VAT) was introduced in the UAE on 1 January 2018. The rate of VAT is 5%. VAT will provide the UAE with a new source of income which will be continued to be utilised to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
A business must register for VAT if its taxable supplies and imports exceed AED 375,000 per annum. It is optional for businesses whose supplies and imports exceed AED 187,500 per annum.
A business house pays the government, the tax that it collects from its customers. At the same time, it receives a refund from the government on tax that it has paid to its suppliers.
Foreign businesses may also recover the VAT they incur when visiting the UAE.
When Are UAE Taxes Due?
Since there is not an individual income tax, there is no requirement to file a return. Income generated outside the United Arab Emirates is not subject to taxes in the UAE, so you have more time for focusing on your United States expat taxes.
Key US Tax Dates
- April 15 - Even though expatriates get automatic extensions to June 15, if taxes are owed the interest will begin accruing on April 15th
- 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 received an extension, your expat taxes are due on this date.
Social Security in the UAE
There is no requirement for expatriate employees to contribute to UAE social security. You will, however, pay into the United States Social Security system when you pay your expat taxes in the United States.
Tax Treaty
Although the United Arab Emirates has treaties with many countries, the US is not one of them. Fortunately, United States expat taxes are the only tax you will have on your income generated within the UAE.
Self Employment
From a tax perspective, there is virtually no important difference between being an employee and being self employed in the Emirates since individuals and most businesses are not subject to income tax. There are seven business entity types available in the UAE, each offering varying levels of legal protections, and each with different compliance and reporting requirements. Since most businesses are not subject to corporate taxes, the tax consequences of each entity type are identical. Do note that foreign investors must usually have a partner in the United Arab Emirates before being allowed to conduct business there.
Also remember that self employment income of USD 400 or greater requires the filing of United States expat taxes.
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We wrote the following article that explains how you should prepare to file US tax returns from UAE:
https://www.taxesforexpats.com/articles/financial-planning/tax-documents-required-to-file-us-tax-return-from-countries-with-no-personal-tax.html