Dubai one of the seven states of United Arab Emirates and a prospering one at that, is well-known to attract shopaholics, tourists and corporates for its tax-free structure. Along with Dubai, none of the other emirates in Dubai levy a federal tax, though they have a legal right to do. In Muslim countries, it is considered forbidden by Islamic law to collect money not gained by work or service, which otherwise 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 to what is nearly tax free. Citizens are not supposed to pay taxes on property, income or capital gains. In spite of that, it doesn’t mean people throw up their hands in the air with no taxes at all. Certain taxes like import duties on goods imported from outside the country, taxes on rental property and on the hospitality industry and social security taxes contribute to the small percentage of taxes imposed. Despite no sales tax, goods that are qualified as haram or forbidden such as alcohol are charged with high taxes. Dubai also does not charge VAT (value added tax) similar to sales tax, on it goods, but the IMF is suggesting that it starts implementing a similar system.
Are Corporate Firms Tax Free?
Corporate firms make a beeline for Dubai since the emirate does not establish any corporate income tax, but foreign banks and oil companies are charged with taxable income. Dubai has also created special economic free zones for companies where they have been offered special incentives to boost their company’s economic development. Tax exemptions are given for 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 by UAE to encourage development where companies are taxed very lightly (or exempted). Today, Dubai consists of 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 amongst others. Of these the Jebel Air Free Zone was the first to open in 1985 when the country called in 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 was created in 1990 with a 50-year tax free period. The Dubai International Financial Centre is also one of the tax free economic zone 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 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.