Module V·Article I·~1 min read
Tax System of the UAE: Overview
UAE and DIFC Tax Regime
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Traditional “Zero” Tax Environment
The UAE is historically known as a jurisdiction with zero direct taxes: no personal income tax; no capital gains tax; no inheritance tax; no withholding tax on dividends/interests.
This tax environment has attracted millions of expatriates and thousands of businesses. The UAE has become a regional hub for the Middle East, Africa, and Asia.
VAT in the UAE (since 2018)
The UAE introduced VAT on January 1, 2018. The standard rate: 5% (one of the lowest in the world). Applies to most goods and services.
Zero rate: export, international transportation, certain financial services, residential real estate (first supply), education, healthcare.
Exemption: financial services (interest, insurance), residential rental, land.
Registration threshold: companies with annual turnover >AED 375,000 are required to register as VAT payers. Voluntary registration — from AED 187,500.
Corporate Tax (since 2023)
Since June 1, 2023, the UAE introduced corporate tax. Rates:
- 0%: taxable income up to AED 375,000 (~$102,000)
- 9%: income above AED 375,000
Exemptions from corporate tax:
- Government legal entities
- Entities operating in resource extraction (already pay royalties)
- Qualified investment funds
- Freezone companies (if complying with qualified income conditions)
Practical Task
A consulting company is registered in the mainland UAE. Annual revenue — AED 2 million, expenses — AED 1.2 million. Calculate: (1) VAT payable (all services — for local clients at 5%). (2) Corporate tax.
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