United Arab Emirates | KPMG | GLOBAL

United Arab Emirates

United Arab Emirates

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There are currently no personal taxes applicable on individuals in the UAE.

Key message

Please note that social security contributions are applicable in the UAE only for UAE nationals. If UAE nationals are employed, then both the employer and the employee will be required to make social security contributions. Neither the employer of an expatriate nor the expatriate employee are required to make any social security contributions in the UAE.

Income tax

There are currently no personal taxes applicable in the UAE.

Social security

Liability to social security

Social security contributions are applicable in the UAE only for UAE nationals. If UAE nationals are employed, then both the employer and the employee will be required to make social security contributions to the General Pension and Social Security Authority (GPSSA). A payment of 12.5 percent by the employer (15 percent if the employer is a public entity) and 5 percent by the employee are due for UAE nationals to the GPSSA.

The employers of an expatriate or an expatriate employee are not required to make any social security contributions in the UAE.

Compliance obligations

Employee compliance obligations

There are no employee compliance obligations in regards to taxes and social security in the UAE.

Employer reporting and withholding requirements

There are no employer reporting and withholding requirements in the UAE.

Immigration

Work permit/visa requirements

Employment visas are issued by the immigration of the relevant emirate. In general, a business can recruit either expatriate or local staff, subject to certain requirements. Employers must apply to free trade zone authorities for visas for individual members of staff, working in companies operating in free trade zones. Similarly, for companies operating in mainland UAE, the visa is issued by immigration of the relevant emriate.

Other issues

Double taxation treaties

The UAE has a wide network of tax treaties, with over 65 treaties signed and in force at this time, with several others in the pipeline.

However, the applicability of the respective tax treaties in the counter jurisdiction lies with the interpretation of the respective tax authorities if they view the UAE as a no-tax or a low-tax jurisdiction. 

Permanent establishment implications

As corporate taxes are currently enforced on foreign oil companies engaged in the exploration and production of oil, and branches of foreign banks, the creation of a permanent establishment in the UAE and its related implications would be purely academic from a UAE tax perspective. 

Indirect taxes

There are currently no indirect taxes applicable in the UAE, other than customs duty. A majority of the goods imported into the Gulf Cooperation Council (GCC) states attract a uniform customs duty of 5 percent, and this is levied at the point of first entry into the GCC. Further movements of goods within the GCC are free of customs duties.

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 the impact of these taxes on their business model and begin preparing for implementation.

With 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.

Transfer pricing

There are no transfer pricing regulations in the UAE.

However as stated earlier, CIT could be introduced in the near future and there could be a requirement for justifying that intragroup transactions are being undertaken on an arm’s length basis. It is therefore recommended that the transfer pricing methodologies recommended under Organization of Economic Cooperation and Development (“OECD”) Guidelines are followed.

Local data privacy requirements

There are no data privacy laws in the UAE.

Exchange control

There are no exchange control regulations applicable in the UAE.

Nondeductible costs for assignees

There are no nondeductible costs for assignees in the UAE.

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