Dubai is often referred to as a "tax haven," but the reality is more nuanced. Significant tax benefits are indeed available, but it is important to clarify which taxes exist and which you can avoid if you operate or reside in Dubai.
1. Which Taxes Do Not Exist in Dubai?
Dubai has become especially attractive due to the absence of the following taxes:
• Personal Income Tax: There is no personal income tax on individuals' earnings in Dubai.
• Dividend Tax: Dividends are also tax-free, offering major savings for entrepreneurs.
• Capital Gains Tax: Profits from investments are not taxed.
• Wealth and Inheritance Taxes: No such taxes exist in Dubai.
2. Which Taxes Exist in Dubai?
While Dubai boasts a favorable tax environment, not every type of tax is entirely absent. Here are the main taxes to consider:
• Corporate Tax: Tax: Introduced in 2023, Dubai now applies a 9% corporate tax, but only if a company's annual net profit exceeds 375,000 AED.
• Value Added Tax (VAT): Introduced in 2018, a 5% VAT applies to most goods and services.
• Customs Duties and Fees: A general 5% customs duty is charged on imported goods.
• Tourism Taxes: Applied in hotels and tourism-related facilities.
3. CFC Rules and Dubai
Controlled Foreign Corporation (CFC) rules are international regulations aimed at preventing companies from artificially shifting profits to low-tax jurisdictions. Dubai remains attractive for entrepreneurs; however, foreign tax authorities rigorously assess the substance of operations there.
It is important to know that although Dubai provides favorable taxation, international businesses should also pay attention to their own country's CFC rules to avoid problems later.
This means that any company formation in Dubai must involve genuine business activities, with proper documentation to demonstrate economic substance.
Summary
Dubai is not entirely tax-free, but it offers major advantages for tax optimization. The absence of personal and dividend taxes and the low corporate tax rate make it particularly appealing for entrepreneurs. However, international regulations and requirements for real economic presence must be taken seriously.
If you would like to get a personalized, complete picture of what taxes apply to your business, sign up for a free consultation!
