Is Dubai Really Tax Free ?

Expats want to flock to Dubai. Apart from the high quality of life, the foremost reason for such enthusiasm for Dubai is the fact that Dubai is a tax-free nation. There is no income tax on income generated in Dubai. Also, there is no sales tax on the majority of goods and services.

Therefore, there is a widespread myth that Dubai levies no kinds of taxes, direct or indirect on its people. A myth is exactly what it is. This is because common sense economics dictates that no state can survive without taxes.

If Dubai is giving lavish incentives to the Emirati people, then such incentives have to be financed by an income of some kind. In this article, we will uncover the various types of hidden taxes that are charged in Dubai.

Income Tax

It is surprising to see income tax as being the number one source of Dubai’s tax since we just stated that Dubai is famous for not levying taxes. It is true that Dubai does not levy income tax on most of their citizens. This does not mean that everyone is exempt from tax.

Some types of listed businesses have to pay tax. The most prominent business in the list is the oil business.

Oil businesses are taxed at a mind-boggling 55% rate. This is a huge figure given that Dubai’s economy essentially runs on oil.

Also, Dubai taxes the income of foreign banks operating in their country. This tax rate is levied at a mediocre 20%. However, given the scale of transactions, Dubai government still earns a lot of revenue from these taxes.

Dubai has identified a few sectors which contribute a lion’s share to the taxes. Everybody else has been exempted!

Entertainment Taxes

Dubai is infamous for levy of high entertainment taxes. Every restaurant in Dubai charges a 10% tax on the total bill. This is called the service charge. However, unlike service charge, the remuneration is not distributed amongst the hotel staff. Rather, the remuneration is sent to the government. This is as good as imposing a 10% service tax on all hotels.

Therefore, as far as the restaurant industry is concerned, no tax in Dubai is simply a myth! Similarly, hotels in Dubai providing boarding and lodging facilities also have to pay taxes.

The logic is that the local population of Dubai isn’t paying these taxes. Instead, it is being paid by the tourists.

Similarly, hidden taxes are levied on theaters, amusement parks or any other source of entertainment and leisure spending.

Import Duties

Dubai is an island with literally no production of its own. Apart from oil, everything else in Dubai has been imported. Most of these imports are also exempt from taxation.

Some imports that are at odds with the local Islamic laws are heavily taxed. These items include alcohol, tobacco, arms, and ammunitions, etc. Products such as alcohol are taxed heavily with 50% taxation on imports and 30% tax at the point of sale.

Other products like cigarettes are also taxed at higher levels as compared to other countries. The tax structure of Dubai is consistent with their Islamic philosophy. Instead of punishing people for not following Islam, Dubai levies monetary policy making it expensive to not comply with the principles.

Taxes on Utilities

Dubai has a big government that has several branches. Each of these branches levies a tax when their services are used.

For instance, there is a council tax levied when utility bills are generated. This means electricity bills are taxed at source. Also, in the recent past, Dubai has started levying excessive tolls on the roads frequented by motorists. The collection of these tolls is pretty significant and helps Dubai government supplement their huge expenses.

The parking in Dubai is also owned by the state. The charges for parking are very steep. In fact, parking charges are the biggest motivation which forces people to take public transport instead of using their own vehicle.

Taxes Generated From Expats

Dubai charges people 100 dirhams per year to renew their national ID. This ID allows them to live, work and earn in the United Arab Emirates.

Dubai has a significant expat population. Hence, the total receipts in this regard are significant even though 100 dirhams does not amount to much for an individual expat. Similarly, almost all expats stay on rent in Dubai.

The Dubai government charges a 5% tax on the rental income generated. This is apart from the council tax that is levied on the property! This makes owning or renting a property in Dubai an expensive proposition.

Dubai also earns taxes by asking visa processing fee from tourists that visit the country. Also, a charge is levied on every person flying out of the UAE. The money so collected is used for the maintenance of airports.

With the Dubai government reeling under debt, more taxes may soon be added to this list. This is already an extraordinary amount of taxes in a tax-free country. Calling Dubai tax free isn’t exactly an accurate statement considering the huge list of taxes provided above.

The businesses have warned the government that any more introductions of taxes will have a negative impact on the foreign investments in Dubai.