Working your way through a foreign tax system can be a bit like navigating a particularly tricky maze. Dubai does not levy an income tax on residents’ earnings in the same way that many other countries do. That’s one of the things that makes it an amazing expat destination. However, that fact doesn’t mean that Dubai is completely tax-free. And for expats, it’s especially important to remember that, even if you don’t have to pay tax in Dubai, you might have a responsibility to pay taxes somewhere else in the world instead. That’s usually because you have taxable earnings in your home country or elsewhere - from a rental property for example - or because another country might consider you a tax resident even if you don’t usually live there.
The tax system in Dubai is extremely favourable to residents. However, if you have just moved to Dubai, it’s a smart idea to get professional advice to make sure you understand your worldwide tax obligations.
Let’s start from the beginning. Dubai is a city and emirate in the United Arab Emirates - the UAE. Some laws or international agreements are made to cover the UAE as a whole, and in some cases, each emirate can set their own rules. So for example, you’ll likely find that double tax treaties are set by the UAE at a national level, but the actual taxes levied in each emirate can be decided on a local level.
So, what about Dubai in particular? Individuals in Dubai aren't taxed on their personal income. That means that if you’re considered a resident in Dubai you won’t have to pay tax to the Dubai authorities on your earnings from work, or other income streams.
However, you do have to be aware that just because you don’t have to pay income tax in Dubai, it doesn’t necessarily follow that you don’t need to pay tax anywhere. You might actually have tax liabilities elsewhere, either in another country you draw an income from, or your home country, if you have either an income, or, are considered domiciled there, and therefore a tax-resident. More on domicile and residency, later.
If you ignore your responsibilities elsewhere you could end up stuck with hefty fines, or even legal action - so taking personalised tax advice from an experienced professional is a smart choice.
So the good news for many expats is that there's no direct equivalent of income tax in Dubai. However, there are other taxes, and it’s worth noting that the entire tax system is a hot topic, with some changes anticipated.
The main current taxes you’ll need to know about include a real property tax which is applied if you buy or sell a property and excise tax which has just been applied to products such as fizzy drinks, tobacco and energy drinks. There are also plans to introduce VAT from January 2018. IMF officials are on record as saying that the UAE as a whole might have to start to consider introducing income tax for residents, to make sure that governments are able to balance the books. However, in Dubai at present, this would be an exceptionally unpopular decision.
(Source, 17 December)
If you’re living in Dubai, it’s extremely important that you identify your tax obligations globally rather than simply relying on the fact that Dubai doesn’t impose its own income tax. Most countries will still want you to pay tax if you earn an income from that country. So for example, if you have investments in your home country which pay you a dividend, you could still be liable to pay tax on the profit from that, even if you don’t live in the country anymore.
What matters in most cases, when it comes to tax, is residency or domicile - not nationality. Most countries will have a framework to identify you as either a resident or non-resident taxpayer, and this will determine whether you have to pay taxes to that country. There’s often a test to determine whether you’re a resident taxpayer - based around where you live most of the time, or where you’re domiciled. Your domicile is considered to be the place where you have the strongest personal and economic links.
If you’re considered a resident taxpayer in a country, you’re probably liable to pay tax on your worldwide income to that country. And if you’re considered a non-resident taxpayer, you’ll still have to pay tax on any income that’s sourced from that country.
In the case of Dubai, this is important. So let’s consider a hypothetical example. Imagine Chris is a British citizen, who moved to Dubai from the UK in October 2017. That means that he lived in the UK for more than half of the 2017-18 tax year. The British tax authorities will likely, therefore, consider him a tax resident for the 2017-18 year. That means that he has to pay tax on his worldwide income for the whole year - even the portion of the year he lived in Dubai - in the UK. Sometimes this tax can be offset by double taxation treaties - but we will talk more about those later.
In the 2018-19 tax year, Chris is planning on staying in Dubai for the whole year. However, he owns a house in the UK which he’s renting out. Because he hasn’t been living in the UK himself, he isn’t considered a resident taxpayer in the UK for that year. But as a non-resident taxpayer earning an income from his rental property, Chris must still complete a tax return in the UK and could have to pay tax on the rent he’s received.
It can be even more complex than this - especially if you draw an income from multiple locations, or travel around a lot. Make sure you get some professional advice so you don’t fall foul of the law.
If you’re working abroad, the local laws in the country you move to will apply. Often there's a test to figure out if you’re deemed to be a tax resident or not, and this will determine whether you pay tax on some or all of your income in your new country.
Double taxation treaties can be used to make sure that people don’t have to pay tax twice on the same income. However, not all agreements cover all types of income - for example, they might refer only to income from employment but not capital. It’s important to get advice if you think that one of these treaties might apply to your situation.
At present, the UAE - and therefore Dubai - has double taxation agreements of some type with countries including the following:
Dubai double taxation agreements
|Bosnia and Herzegovina||Montenegro|
(Source, 17 December 2017)
Living in the UAE doesn’t mean you’re not going to be liable for tax anywhere in the world. In fact, you could be considered a tax resident in another country and have to pay tax on your worldwide income there. Or, if you source an income somewhere else, but aren’t considered a resident for tax purposes, you might still have to do a tax declaration and pay some tax on that specific income in the country it comes from.
Even though you'll most likely need a bank account in Dubai, you might also want to keep your bank account in your home country, to make it easier when you still need to pay taxes there. If you also have a source of income in your home country, for instance when you rent out your house or work remotely, and you want to transfer some of the earnings to Dubai, then you should make sure to understand the upfront charges, but also the exchange rate that will be used to convert your money to a different currency.
Banks and money exchange services often don’t give customers the real, mid-market rate, which you’d find on Google. They mark up the rate by 4-5% and keep the difference, so you pay more than you need to.
Your transfer could be cheaper if you use TransferWise. It’s often a better value because TransferWise works differently to banks. It’s still quick and safe, but with TransferWise you can trust you’ll always get the real exchange rate, and the fee charged is small, and you’ll know how much it is, upfront.
You could get even more benefits when you open a new TransferWise borderless multi-currency account. This account lets you hold your money in any one of dozens of different currencies, including dirham, all in the same account. It’s simple to convert your money between currencies whenever you need to, using the real exchange rate every time. A neat solution for expats and people who want their money to be as flexible as they are.
Taxes are tricky - and if you live in Dubai it’s important to check your duties not only in the UAE but anywhere else in the world you have an income source, or could be considered to be domiciled. If you find you need to transfer your money to Dubai to pay towards your life there, TransferWise might be able to help you save money. See if you can get a better deal on cross-border transactions from TransferWise.
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