Taxation of international executives
The zakat (an Islamic tax on property and income) is not officially levied in the UAE. There are municipal taxes on rentals which are levied by few of the individual emirates which are discussed below. A 5 percent tax is also imposed on hotel services and entertainment and there are sundry small taxes, such as carrier tax, on cinema tickets, and so on.
There is currently no sales tax or VAT on any goods or services except for sales tax on alcohol. However, the UAE, along with the other GCC countries is actively considering the introduction of VAT in the near future the timelines of which are not available in the public domain.
On 24 October 2016, the President of the UAE issued a decree to set up a new authority, the Federal Tax Authority (“FTA”), responsible for maintaining records on taxpayers and on taxes paid, as well as issuing necessary guidelines and clarifications to taxpayers on matters related to federal taxes and related fines.
The above action was in continuation to a media report by the UAE Ministry of Finance on 18 August 2015 confirmed that the UAE is contemplating introducing both VAT and a federal CIT regime. The VAT regime is going to be implemented by the UAE under a GCC level framework agreement in conjunction with other GCC member states (Saudi Arabia, Kuwait, Oman, Qatar and Bahrain). An immediate announcement will be made once agreement is reached between the GCC member states.
The federal CIT regime is an internal tax paradigm shift for the UAE and the new regime is being proposed to supersede all the Emirates level tax decrees when implemented. We understand from the MoF that the draft CIT law is still under study. The MoF also confirmed that UAE businesses will be given no less than a year after the law is approved to prepare for CIT.
Based on all the media reports/updates by the MoF, the introduction of both VAT and a CIT regime now seems more certain. Therefore, companies should immediately start assessing theWith regard to VAT, the MoF has suggested that VAT will probably not be applied to education, healthcare and social services – or to 94 food staples.
The VAT rate is likely to be introduced from 1 Jan 2018 at 5% of the value of the goods and services. It should also be noted that the impact of the introduction of a VAT and the federal CIT regime in the FTZs is currently unknown and unavailable in the public domain.
The UAE is also contemplating to introduce a selective excise tax applicable on soft drinks, energy drinks, alcohol and tobacco products. The selective tax regime is going to be implemented by the UAE under a GCC level agreement and will be introduced from 1 January 2017. The selective tax rate is likely to be 100% on energy drinks and tobacco and 50% on soft drinks. impact of these taxes on their business model and begin preparing for implementation.
With effect from 1 January 2003, the countries of the Gulf Cooperation Council (GCC) formed the GCC Customs Union which uniformly imposed 5 percent duty on the majority of goods entering the GCC.
This duty is charged at the first point of entry into the GCC and the goods on which the duty has been paid may then move freely between member states without payment of any further duty.
The GCC countries include the UAE, Saudi Arabia, Kuwait, Qatar, Oman and Bahrain.
Some of the emirates levy municipal taxes on rentals and on hotel services. Various municipal taxes are listed below:
Municipal tax on Rentals
With regard to municipal fee in Dubai, the authorities charge a flat 5% charge [residential rentals] on the annual actual rentals payable by the tenant. The emirate of Sharjah levies a fee of 2% and the emirate of Abu Dhabi levies a fee of 3%. Current information is not available with respect to other emirates.
The fee is applicable to all tenants irrespective of the nationality and is payable to the municipality of the emirate. The fee is either collected at the time of registration of the tenancy contracts with the respective municipality of each emirate or collected in equal monthly installments via utility bills. The municipal fee rate for commercial rentals is 10% in Dubai.
Municipal tax and service charge on Hotels
The UAE Ministry of Labour (MOL) has recently introduced a system for payment of wages by companies registered with them. The system known as Wage Protection System (WPS), allows MOL to create a database that records wage payments in the private sector to guarantee timely and full payment of wages. All the companies in the UAE are mandated to implement the WPS except for companies located in the Free Trade Zones in the UAE.
Under the WPS, all salaries and wages for employees must only be paid from a local bank account and in the local currency such as UAE Dirham (AED). The companies that default from adhering to WPS will not be eligible for new work permits.
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