How Dubai Generates Revenue Without Taxes? Is UAE a Tax Haven?

Why is the UAE Tax-Free, and How does it Make Money?

We all want to live in countries with no federal income taxes; moreover, those countries should have decent living standards, decent infrastructure, and global economic development. The United Arab Emirates is one such country that comes with a pack of all these strengths. Despite having huge development in all the sectors in the country, it might be difficult for the UAE to maintain its spending, but the question is how the UAE makes money and why the UAE is a tax-free country. Here, we will find more details about the reasons for the UAE's economic growth and its strategy without levying taxes on its citizens.

Key Highlights

  • The United Arab Emirates is known as a tax haven nation that attracts individuals and businesses from around the world due to its lack of people from around the world.
  • Despite being a tax-free nation, it still levies federal and regional taxes to generate revenue.
  • Federal taxes in UAE include excise tax, value-added tax, corporate tax, customs duties, etc.

Why is there no tax in the UAE? 

The United Arab Emirates has quickly made significant changes in its taxation system, which most of the government failed to do. Today, unlike other governments, it doesn't rely mainly on taxes to meet its requirements. It is regarded more as a tax-free heaven state. However, the bigger question is, despite not having an income tax, inheritance tax, social security tax, capital gain tax state or gift tax, luxury tax, taxes on foreign pensions and no stamp duty, how does a country like the UAE manage its spending and is still regarded as one of the richest countries in the world? 

Despite being a tax haven nation, the UAE levies taxes on businesses in two different ways.

Federal taxes and regional taxes

  • Federal taxes include excise tax, value-added tax, economic substance reporting, country-by-country reporting and custom duty.
  • Regional Texas includes property transfer tax, municipality tax, taxes on tourism facilities, and social security levy.

Federal taxes in UAE

  • Excise tax: It was introduced in 2017. Excise tax is a type of indirect tax applied on specific goods that harm human health or the environment. It is also known as excise goods. It includes tobacco and tobacco-related products, sweetened drinks, energy drinks, carbonated drinks, electronics, smoking devices, etc. The tax levied on excise goods can be 50% to 100%.

  • Value-added tax: It was introduced in 2018, and 5% of value-added tax is levied on the majority of goods and services in the country. This tax is used to support government public services, which also helps the country decrease its dependence on oil and other hydrocarbon-related products.
  • Corporate taxes: Corporate tax is a form of direct tax on the net income or profit of companies and other entities. In the UAE, all businesses conducting activities under a commercial licence are subject to corporate taxes. 
  • UAE custom duty:  Custom duty on commodities in UAE is determined at 5% of the cost of insurance and freight value. Alcohol and similar products are subject to a 50% tariff, while tobacco and other items are subject to a 100% duty.

Regional Taxes

It includes the following taxes that are levied differently according to the Emirate. 

  • Property transfer taxes: This kind of tax applies when the properties are bought or sold in the USA. The specific Emirate determines the regional taxes, and the transfer fees are usually divided equally between buyer and seller.

  • Taxes in tourist facilities: This is a kind of tax levied on restaurants, hotels, apartments, resorts, etc., and can vary according to the Emirate you check-in. It includes a 10% tax on room rates, 10% on service charges, 10% on municipality fees, 6% to 10% on City tax, and 6% on tourism fees.

  • Municipality tax: It is calculated as 5% of the rental contract value for all premises; however, it can vary between Emirates.

  • Social security levy: Social Security contributions for UAE National employees are calculated at a 20% rate of the gross remuneration of employees. Here, out of 20%, 5% is payable by the employee, the government makes 12.5% by the employer, and 2.5% contribution.

How does Dubai make money with no tax? 

UAE is a federal country with seven different Emirates: Sharjah, Ajman, Umm Al Quwain, Fujairah, Ras Al Khaimah, Abu Dhabi and Dubai. Each Emirate has its own government and tax system; however, there is also a federal tax system. Despite not levying taxes on individual Dubai levies, regional taxes like property transfer tax, which is 4%, are usually divided between buyer and seller. It also levies taxes on tourist facilities. It also earns from the municipality or rental tax, which is 5% in Dubai, for the residential tenants on their annual rent. More than 10% is also added to the commercial tenants.

Final words

The United Arab Emirates is a tax-free heaven country that attracts individuals and businesses from around the world. Despite not imposing income taxes and other common taxes on its citizens, the UAE generates revenue through federal and regional taxes. Federal taxes include excise tax, value-added tax, etc. Regional taxes include municipal taxes, property transfer taxes, etc.


Why is the UAE a tax-free nation?

UAE does not levy traditional income taxes or other common taxes on its citizens; however, it does generate revenue through various federal and regional taxes.

How does Dubai generate revenue without an income tax?

Dubai uses its regional tax policy, which levies property transfer tax, taxes on tourist facilities, and municipality tax to generate revenue.

Why is there no income tax in the UAE?

When they discovered oil in the mid-1960s, the UAE federal and local governments had no incentive to levy direct taxes.

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