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Dubai Tax Haven - Myth or Reality?

Dubai from top
Credit: WN / Smita

Dubai one of the seven Emirates of the UAE and a prospering one at that. It is well-known to attract shopaholics, tourists and corporations due to its tax-free structure. Along with Dubai, none of the other Emirates in Dubai levies a federal tax, though they have a legal right to do. In Islamic countries, it is forbidden to collect money not gained by work or service, which are taxes. Even property tax is not levied on the citizens of Dubai. However, the myth that Dubai zero percent tax free is far from reality since there are some social security levies imposed on citizens and firms are supposed to pay certain corporate taxes.

Are Individuals Tax-Free?

Dubai comes close to being tax-free. Citizens are not obligated to pay taxes on property, income or capital gains. In spite of that, certain taxes like import duties on goods from outside the country, taxes on rental property and in the hospitality industry as well as social security taxes contribute to the small percentage of taxes imposed. Despite no sales tax, goods that are qualified as haram or discouraged are charged with high taxes. Dubai also does not charge VAT (value added tax) similar to sales tax, on its goods, but the IMF is suggesting that the Emirate should start implementing a similar system.

Are Corporate Firms Tax Free?

Corporate firms make a beeline for Dubai since the Emirate does not have any corporate income tax. However, foreign banks and oil companies have taxable income. Dubai has also created special economic zones (SEZs) for companies where they have offered special incentives to boost the area's economic development. Tax exemptions are given up to 15 years, after which the firms can apply for a further 15 years period of tax exemption. Moreover, no import or export taxes are levied on companies in free zones.

Economic Free Zones:

Special industry-specific free zones are set up in Dubai to encourage development where companies are taxed very lightly (or exempted altogether). Today, Dubai has 18 specific free zones consisting of Dubai Internet City, Dubai Aid and Humanitarian City, Dubai Airport Free Zone, Dubai Silicon Oasis, Dubai Media City, Jebel Air Free Zone, etc. Of these, the Jebel Air Free Zone was the first to open in 1985 when the UAE invited foreign firms to set up the base in their region. The Dubai Media City and Dubai Internet City that cater to the media and communication industry were created in 1990 with a 50-year tax-free period. The Dubai International Financial Centre is also one of the tax-free economic zones with no barrier on how long the companies within the zone can maintain tax-free status.

How UAE Affords the Tax-Free Status

UAE has always been a rich nation since it gained independence from the United Kingdom in 1971. Oil revenues allow it to sustain the tax-free status but the IMF feels that the nation should look beyond to extend its business activities into disparate fields.

Shopaholics who visit Dubai are in for a treat with duty-free goods available at bottom cheap prices. Since summers are ending, tourists should book the next available cheap flights to Dubai.

1 comment

Tori
Thanks for the helpful UAE tax information, what I was looking for.

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