When it comes to establishing a business in Dubai, one of the most important aspects to consider is the tax implications. The United Arab Emirates (UAE) has a progressive income tax system, with rates up to 55%. However, this system is not implemented in practice. Branches of foreign banks are subject to a fixed rate of 20% under various bank decrees at the Emirates level.
Companies involved in petrochemical and oil and gas activities in the UAE are subject to an income tax of more than 55% under their concession contracts or individual tax charters. Companies based in the UAE will be subject to UAE Value Added Tax (VAT) on their global revenues, including foreign income that may have been subject to taxes of a similar nature in another country. Dubai is home to many local and international companies that benefit from its attractive tax structure. A group of companies based in the UAE may choose to form a tax group, which may be treated as a single taxable person (or a tax unit) if the parent company owns at least 95% of the share capital and voting rights of its subsidiaries.
As in Western countries, VAT is an indirect tax applied to the final consumer for the purchase of goods and services from companies in Dubai. Dubai's taxation system is one of the most advantageous in the world, as the government only imposes a few taxes. To remain an attractive tax jurisdiction for international companies, the UAE will allow foreign branches of companies in the UAE (subject to certain conditions) to either apply for a foreign tax credit for taxes paid in the country with a branch abroad, or request an irrevocable exemption for the benefits of their branches abroad. The UAE has signed tax treaties with many countries, including neighboring countries in the Middle East, Germany, Italy, Malta, the Netherlands, France, Greece, Switzerland and Spain from Europe; Canada, Australia, China, Japan, India and South Korea.
These treaties have made it possible to reduce tax burdens for companies that redistribute their profits in other countries with more aggressive tax systems. However, it is important to note that if you are taxable in your home country and make significant profits in Dubai, you may be subject to taxation. Non-residents will be subject to UAE CT on taxable income (of an EP in the UAE) and (originating in the UAE). Individuals will not pay income tax as long as they do not conduct business or commercial activities in the UAE.
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