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Dubai: Domestic Corporate Taxation

Introduction

Dubai's enormous oil revenues mean that the government has no need to raise income through direct taxation. Accordingly Dubai is a "no tax" emirate characterized by an almost complete absence of taxation. There are no withholding or capital taxes.

Speaking in November 2005, Sheikh Mohammed bin Rashid Al Maktoum, the Crown Prince of Dubai and the Defence Minister of the United Arab Emirates sought to quash speculation regarding the possible introduction of an UAE sales tax.

It had been suggested in August of that year that the United Arab Emirates was mulling the introduction of a national sales tax, and reports suggested that the International Monetary Fund had been asked by the UAE authorities to help develop a value added tax system in an attempt to widen the country's tax base.

The IMF also reportedly urged the UAE to introduce a property tax and widen the corporate tax net across all sectors, warning that state budget surpluses, which have been dependent on high oil prices in recent times, are unsustainable without longer-term sources of tax revenues.

The reports were seemingly confirmed when Sheikh Hamdan bin Rashid Al Maktoum, then-Deputy Ruler (now Ruler) of Dubai and UAE Minister of Finance and Industry stated that: “We are (still) under discussion (and) we have not decided yet. They are just bringing the idea (of levying tax).”

Moreover, the revelation by Shaikha Lubna Al Qasimi, the UAE's Minister of Economy and Planning that the government was studying a plan to introduce sales tax on tobacco and alcohol from 2006 fuelled the speculation still further, with many observers interpreting the decision as a first step towards more general forms of taxation.

However, the former Dubai ruler's words were taken to suggest that the emirate will at least remain free from income taxes for non-oil firms and individuals for the foreseeable future.

The UAE has been studying the possible introduction of VAT for some time, and a report by Dubai Customs suggested that the levy could have been introduced as early as 2009. However, it is becoming more apparent that the GCC member states want to roll out VAT simultaneously to replace revenues derived from trade taxes, which are due to be phased out as a number of free trade agreements signed by the GCC, including one with the EU, become effective. It was announced in late November, 2011, that the introduction of VAT would be delayed indefinitely. No new date has been set.

With the exception of banks and oil companies no corporate income tax is payable by businesses in Dubai. Oil companies pay up to 55% tax on UAE sourced taxable income whereas banks pay 20% tax on taxable income. The taxable income of banks is as per the audited financial statements whereas that of oil companies is as per the concession agreement. Oil companies also pay royalties on production.

 

 

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