Expat life brings with it a number of financial implications that can either help or hinder you. Taxation is one of the biggest hurdles expats face when moving abroad, especially in countries like the UAE where taxes are kept to a minimum.
This article aims to explain some of the tax implications for expats in the UAE so you can plan ahead accordingly. If you’re reading this as an expat based in the UAE, chances are you’ve already discovered just how much taxes can get in your way.
Expats living in the UAE are not subject to personal income tax, which means everything from rent and savings accounts to interest on loans and gifts needs to be kept track of carefully. Even if all your expenses are reimbursed by your employer, it’s important to keep records for tax purposes later on down the line.
Company Service Fee (end of service benefit)
When you sign up for a pension plan, you’re essentially signing a contract that says you’ll receive a set amount of money at a set time in the future. However, when you move to the UAE, this contract is nullified because the UAE doesn’t recognize pensions.
Because of this, employers in the UAE typically pay you a “service fee” in place of a pension. This service fee is essentially given to you in one fell swoop at the end of your employment contract so you can pay taxes on it in one go instead of trying to keep track of it throughout your employment.
Since it’s essentially your pension, you can also claim it back if you leave the UAE and return to your home country. The service fee is essentially given to you in one fell swoop at the end of your employment contract so you can pay taxes on it in one go instead of trying to keep track of it throughout your employment.
Which Expats Are Subject to Taxes in the UAE?
In most cases, expats living in the UAE are not personally taxed on their income. However, some expats may be subject to taxes on their income if they are employed by a government entity or a nonprofit.
Expats employed by institutions such as the police, the armed forces, and the fire brigade are taxed on their income. Expats in managerial positions employed by government institutions or nonprofit organizations may also be subject to taxes on their income.
Many of the ME countries Saudi, UAE, Kuwait, Oman Qatar do not impose income tax.
While expats pay 1% of their salaries to social security funds, Citizens contribute 7%. For companies social insurance amounts to 12% of citizen’s & 3% of expat’s income. Expats are also required to pay a 10%municipal tax to rent somewhere to live.
Personal Income Tax for Expats in the UAE
As stated above, personal income tax is not imposed on expats living in the UAE. However, expats living in the UAE can be taxed if they receive income from sources outside the UAE.
If you receive income from outside the UAE, you may be subject to a withholding tax at a rate of 10%. Expat income that is taxed in the UAE includes: Income from real estate property outside the UAE, Income received from a trust fund outside the UAE , Income from stocks and bonds (including dividends) outside the UAE, Income from royalties outside the UAE.
Expat income that is not taxed in the UAE includes: Salary and wages paid by an employer in the UAE Pension and retirement payments
VAT for Expats in the UAE
VAT stands for “value-added tax” and is a type of consumption tax paid by businesses on the purchase of goods and services. In many countries, businesses must pay VAT and then pass that cost on to the consumer by way of higher prices. Unlike other taxes imposed on businesses, VAT is normally charged on business expenses, not on business revenue. This means that businesses may deduct the VAT they’ve paid on materials and services on their income tax return. Expat workers who are employed by a company registered to pay VAT should be given a receipt with their VAT ID listed on it. This receipt should be kept with your other receipts and kept track of.
The average number of hours worked in the Middle East is eight hours per day for adult workers, or 48 hours per week but do have a longer flexible hours., if desired.
Employees are entitled to 32 days of annual leave and 10 paid public holidays. They can avail for extra vacation, sick and maternity leave. Employees who have worked for their employer between 6 months – 1 year receive two days of paid vacation leave per month, while those who exceed at least a year are entitled to 30 days of paid leave. Labour law currently mandates that staff are eligible for seven paid holidays.
All companies in the UAE are legally required to pay staff an end-of-service award. Termination pay is mandatory unless employees are terminated for good cause, quit without giving proper notice, or resign before completing a definite-term contract.
Personnel who have completed one or more years of continuous service are entitled to 21 days of severance pay for each of their first five years of service and 30 days pay for each additional year.
In the UAE, for a working woman entitle fully-paid maternity leave in the private sector is 45days, if she completes year; If not, she is still entitled to 45 days of maternity leave but on half-pay. The mother may also be eligible to claim up to100 days of unpaid leave after this period if she has a pregnancy-related illness that can be verified by a doctor’s certificate.
After completing three months of continuous service, employees are entitled to 15sick days at full pay. Subsequent sick days, up to a maximum of 90, can be taken with partial pay or no pay.
It should also be noted that staff in the UAE must obtain a sick note from their doctor on the first day of their absence from work.
For every year of service, an employee is entitled to annual leave of not less than the following:
6month – 1 year
Annual leave is usually calculated on the basis of a calendar month rather than by working days.
Banking requirements related to payroll
UAE Ministry of Labor, from1 September 2009, introduced a mandatory electronic salary transfer system called Wage Protection System(WPS), for all employers within UAE registered with the Ministry of Labor.
However, FreeZone companies are excluded from WPS except Economic Zone World (EZW).
Through an accredited agent employer engage UAE Central Bank for the purposes of the WPS for payment of salary to its employees.
• The bank sends the payroll details to the WPS agent engaged by the employer.
• The WPS agent forwards the details electronically, which are then transmitted by the system to the Ministry.
• The Ministry confirms to the WPS that the salary file corresponds with the details that are registered with it.
On the basis of this, the WPS sends the salary file containing the employee payroll details to the WPS agent with an authorization for payment.
• The WPS agent makes the payment of the salaries to the employees and must be paid in the local currency (UAE dirham).
• The Ministry of Human Resources and Emiratization has launched a new
decree through Ministerial Decree No. 739 of 2016 Concerning the Protection that all emplyers registered with Ministry shall pay the wages on the due date through the WPS to ensure that wages have been fully paid within a period not exceeding 10 days from the registered due date in the WPS.
• If wages are not paid within a month the establishment will not receive further work /project permits up to 3 months after the date the employer is in compliance with the WPS depending on the number of previous violations. If these sanction are ineffective against the employer, the Ministry of Labour, at its discretion, may prohibit any other companies under common ownership with the errant employer from receiving further work permits until court proceedings to consider further sanctions have been concluded or until the violation is rectified.
Import Taxes for Exports in the UAE
If you ship something out of the UAE, you will be charged a tax on the export value. If you buy something outside the UAE and bring it into the country, you will be charged a tax on the import value.
Exports are taxed at 5% of the value of the goods, while imports are taxed at a rate of 40% of the value of the goods. This tax is paid to the customs of the UAE. They will keep this tax with you when you export the item. Exports are also used to pay for things like customs services, freight, insurance and related costs.
The UAE has kept taxes to a minimum, and most expats avoid paying personal income tax at all. However, it’s important to keep track of all your expenses in case you need to claim a deduction on taxes back home. If you’re an expat living in the UAE, it’s important to keep track of all your expenses and keep records for tax purposes later on down the line. Taxes can be complicated, but taking the time to understand them will help you plan for the future.