The number is increasing, and there are now 7.8 million expats living in the UAE. The UAE is not known as the financial and commercial hub in the Middle East for nothing. That is why the UAE is continuously promoting itself as a tax haven. If you are an American who is working as an expat anywhere in the UAE, you will still be subject to the American taxes for expats. The following will guide you in understanding your responsibilities on taxes as an American expat in the UAE for company setup business consulting purposes:
Income Tax Rates in the UAE
There are no federal taxes in the UAE; hence it is known as a no-tax economy. Currently, you need not pay for income tax, corporate tax, withholding tax, or no capital gain tax. There are certain businesses that are subject to taxation, but majority of the corporate entities are exempted. The UAE however started implementing 5 percent value added tax on several goods and services unless there is a special exemption.
Social Security in the UAE
Expatriate employees are not required to contribute to Social Security. Also, a part of the US taxes will go to the Social Security.
Tax Due Date in the UAE
No income tax is collected from individuals. That is why no return is required from them to be filed too. Foreign income is also not taxed by the UAE which enables you to focus on your US taxes.
Tax Treaty with the UAE
There are several countries in which the UAE has tax treaties, but these do not include the US. Fortunately, the UAE sourced income is taxed only by US taxes.
Taxation for American Expats in the UAE
If you are a US citizen or a permanent resident of the US, you have the obligation to pay federal taxes every year to the US. Apart from the regular income tax return, you are also required to file an informational return on all your assets that are held in foreign banks. The US is one of the few countries that taxes the international income of its own citizens, but it also has special provisions to prevent them from double taxation.
The Foreign Tax Credit enables you to lower your tax bill on the remaining income through certain amounts that are paid to certain governments. The Foreign Earned Income Exclusion which allows you to decrease the 2018 taxable income by $104,100 as a result of labor in a foreign country. The Foreign Housing Exclusion allows for additional exclusion from income for certain household expenses incurred as a result of living abroad.
It is important to plan accordingly, to take advantage of such strategies to minimize if not eliminate your liability on US taxes while living as an expat in the UAE.
The Self-Employed American in the UAE
Individuals and businesses are not required to pay income taxes. That’s why there is no major difference between the employees and self-employed when it comes to taxes. There is one thing to take note however: the foreign investor in general requires a local UAE partner to do business within the UAE.
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