The UAE - taxation of individuals and legal entities
When talking about tax system in the United Arab Emirates, it should be noted that all benefits and advantages thereof, as opposed to other jurisdictions, are based on enforceable state policy. The government of the United Arab Emirates have declared as top priority for public policy the formation of favorable conditions for business and creation of friendly climate for foreign investments into local economy.
Economic stability as assurance of success
The economy of the United Arab Emirates has shown unprecedented growth rate in the recent years, despite economic crisis rolling through the world. Currently, real estate property in the UAE is enjoying brisk demand. It constitutes an effective investment instrument for foreign businessmen. A great number of residential buildings, commercial and office facilities, hotels and entertainment centers are handed over every year in the United Arab Emirates. It's not a secret that real estate in the UAE is sold out at the time of concept development, designing and construction.
The United Arab Emirates have gained the reputation of the best platform for incorporation of foreign company representative office; and due to relatively cheap energy resources the UAE is the ideal for operation of production lines.
Modern and developed infrastructure, availability of international transport hubs, integrated logistics, high quality of life and security constitute a good complement to advanced fiscal policy of the state. it is no surprise that the UAE have attracted potential investors from all over the world.
Official fiscal policy and taxation
State fiscal policy of the United Arab Emirates excludes direct taxation of residents, whereas country budget revenues are generated through indirect taxes. It is important to note that tax benefits apply both to legal entities and individuals. No requirements with respect to compulsory welfare payments enhance the befits of the UAE fiscal system.
Absence of individual income tax attracts foreign skilled personnel from around the world to the local labor market. It is reported that the UAE is currently showing steady annual increase of the number of incorporated foreign companies and labor force.
Current economy of the UAE is not based only on oil and gas sector and expensive real estate. Primarily these are financial and banking sectors, tourism and international trade, industrial and entertainment sectors. Today there are terms for business development in any economic sector in the UAE.
Tax Exemtion
At the same time, fiscal law and taxation of the UAE determines some types of activities that are not subject to tax exemptions. For example, corporate tax is charged by companies, engaged in banking, oil and gas sector of the economy. It should be mentioned that oil and gas sector serves as the basis of prosperity of state with currently highly diversified and developed economy. Average corporate tax rate in this commercial sector is about 50-55%.
As for the banking sector, everything here is linked with specifics of the Muslim world, where charging interest is deemed unjust business. This, however, does not prevent the United Arab Emirates to have the most modern and sophisticated banking system in the region. The national banking sector is represented by both local and foreign banking institutions. For foreign banking institutions corporate tax rate is around 20-22%. Inspite of thse terms, the interest rates with respect to banking products offered in the UAE is much more profit - generating than similar products in Europe.
Additional opportunities for tax optimization
The United Arab Emirates government does its best in order to make potential foreign investors feel as much comfortable as possible at the local market. One of the best examples is the initiative of the state to provide opportunities for lawful optimization of tax base at the international level. It became possible due to signing of the bilateral international agreements with a number of countries aimed at preventing double taxation.
Real estate in the UAE and it taxation
The state has taken care of real estate market since it is one of the most effective investment tools. Apart from the fact that foreigners are allowed to acquire full ownership of real estate in the UAE, tax incentives and exemptions are applicable to income generated by the residential and commercial property.
For example, in Dubai, when purchasing property, only single registration fee of 4% of the value of the property is charged. In this case, the fee is paid jointly by both parties to the transaction - 2% by each of the parties. Income generated from lease of residential property is taxed at the rate of just 5%, whereas commercial property rate is charged at 10% rate.
Opportunities for international companies
Special free trade zones operating in the UAE are of the particularly interest. They are some type of “pilot” project of the state, which proved its economic viability and have become a real pride of the Arab economy.
All international companies incorporated on the territory of such special free zones are fully exempt from income tax and other corporate taxes. The main advantage of such free zones is the possibility of 100% ownership by foreign nationals, that is insupportable in case of incorporation of local companies. Besides, international companies may freely repatriate investment assets and enjoy complete absence of foreign exchange control.
Free trade zones are the best platforms for building a complete commerce base. To optimize taxation and incorporate a company it is sufficient to obtain service, industrial or commercial license.
It is obvious that business facilitating all the competitive advantages that are available in the United Arab Emirates, has no other choice than to succeed and has unlimited prospects for development.
