Taxes in UAE: Everything You Need to Know

Since the discovery of oil in the UAE in the mid-1960s, the government relied heavily on oil revenue, avoiding the need for direct taxation. Instead of collecting taxes, the federal government was funded by royalties from emirate-owned oil companies. However, as the UAE diversifies its economy, it has established a tax system less dependent on oil income.

Today, UAE’s tax structure includes: Corporate Tax, Value Added Tax (VAT), Excise Tax, and Customs Duty. To understand these new tax rates in the UAE, we have prepared this guide, which covers the types of taxes in UAE, how to pay tax in UAE, and everything related to taxation in UAE.

Overview of Taxation in UAE

Here is a short summary of the types of taxes in the tax system of UAE:

Types of Taxes in UAE

Corporate Taxes in UAE

From June 2023, all UAE businesses, including non-free zone Islamic ones, must pay a 9% corporate income tax for their first accounting period. 

This structure is simple with flat rates for both value-added and corporate taxes. 

The tax year in the UAE for corporate tax is either:  

• 1 January to 31 December, OR
• 1 June to 31 May  

The applicable period depends on the structure and how you have set up your business.

Who is Liable to Pay Corporate Tax in the UAE?

Corporate Tax applies to the following groups:

1. Companies and legal entities based in the UAE
2. Individuals who run a business or engage in business activities in the UAE
3. Foreign firms that have a permanent establishment in the UAE

What is the Withholding Tax under Corporate Tax?

People or entities who do not fall in the above categories are subject to a withholding tax of 0%. This means it applies to:

• Non-resident individuals or entities without a permanent establishment in the UAE or
• Earning UAE income not linked to a Permanent Establishment 

The payer collects this tax on behalf of the income recipient and usually applies to cross-border payments like dividends, interest, and royalties.

Exemptions from Corporate Tax

The following table summarises all those who are exempt from paying corporate tax in the UAE:

Value Added Tax (VAT)

In January 2018, the UAE introduced Value Added Tax (VAT) on most goods and services at a standard rate of 5%. This tax applies at various steps of the supply chain and is collected by businesses or firms on behalf of the government.

Categories of VAT in UAE

There are three categories of VAT in UAE: Standard, Zero-rated, and Exempt.

1. The standard VAT rate in the UAE is 5%. It applies to most goods and services. 
2. Some goods and services are taxed at a 0% VAT rate, meaning VAT is applied but at a 0% rate. Businesses can still recover the VAT on costs associated with these supplies. Zero-rated categories include:

• Exports of goods/services other than countries of the GCC
• International transportation and related supplies
• Newly constructed residential properties (for the first sale only)
• Healthcare and educational services, under certain conditions

3. Exempt supplies are not subject to register or comply with VAT, and businesses cannot recover VAT on costs associated with these supplies. Exempt goods and services include:

• Financial services, such as loans and credit (where no fee is charged)
• Residential property rentals
• Bare land sales
• Local passenger transport

Who is Exempt from VAT Registration?

The UAE government has set a three-tiered structure for VAT registration compliance. It looks like the following:

• Mandatory Registration Threshold: Businesses with taxable supplies over AED 375,000 must register.
• Voluntary Registration Threshold: Businesses with taxable supplies between AED 187,500 and AED 375,000 can register voluntarily.
• Small Businesses and Exempt Entities: Entities making only exempt supplies or making taxable supplies below AED 187,500 do not need to register for VAT.

Excise Tax

Excise tax in the UAE is a consumption tax that the government introduced to discourage the use of products that are harmful to public health or the environment. A concise overview of the products that are charged an excise tax and rates are mentioned in the table below:

Custom Duties

Custom duties are levied on imported goods in the UAE to regulate trade and generate government revenue. Most products have a standard duty, though certain goods are exempt or taxed differently.

• Standard Rate: 5% on most imported goods.
• Exemptions: Certain items like pharmaceuticals, medical equipment, and some agricultural products are exempt.
• Special Rates: Higher duty rates apply to items such as tobacco (100%) and alcoholic beverages (50%).

Key Points:

• Free zones in the UAE allow for the import, export, and re-export of goods without customs duties, making them attractive for international businesses.
• Customs duty is calculated on the CIF (cost, insurance, and freight) value of the goods.

Tourism Tax

The UAE’s tourism tax is charged on accommodations and specific services in the hospitality sector. Different emirates may vary slightly in rates, but standard charges include:

• Municipality Fees: Up to 10% of the room rate (varies by emirate).
• Service Charges: Around 10%, added by hotels and restaurants to the bill.
• Tourism Fees:
  • Dubai charges a “Tourism Dirham” fee, which ranges from AED 7 to AED 20 per night, depending on the hotel rating.
  • Abu Dhabi charges 4% on hotel bills.

How to Pay Taxes in UAE

The table below summarises where you can pay the taxes in UAE and the relevant deadlines for each type of tax.

Conclusion

The UAE has introduced new taxes in recent years, moving beyond its oil-dependent revenue model. With these developments, understanding the UAE's tax structure is essential for both businesses and individuals. This blog gave you a comprehensive overview of these taxes and the importance of compliance UAE.

Another upcoming development in UAE is the e-invoicing mandate in the second quarter of 2026. ClearTax could make this transition easier, ensuring smooth VAT filings and compliance with the new rules. Contact us to learn more.