Understanding tax policies and regulatory changes is crucial for any Non-Resident Indians (NRIs) living in the UAE, for compliance and effective financial planning. You can visit the official UAE website, refer to financial newspapers, and take the help of tax advisory firms or online professional networks to stay informed about regulatory updates and changes in NRI tax compliance requirements in the UAE.
NRI Tax Policies in UAE
1. Personal income tax:
The UAE does not levy personal income tax on individuals. Hence, any income earned in the UAE by an NRI is not subject to tax.
2. Capital gains tax:
The UAE does not impose capital gains tax on individuals. Hence, if NRIs earn capital gains on investments held within the UAE, such as stocks, property, or other assets, they are not subject to capital gains tax.
3. Property tax:
The UAE does not impose an annual property tax on residential or commercial properties. Once a property is purchased, individuals, including NRIs, do not have to pay recurring property taxes. There has been no significant change in this tax policy related to the NRI property tax in the UAE. However, other fees related to property ownership, such as municipality tax, property registration charges, and transfer fees, may be applicable and vary among the 7 Emirates.
4. Inheritance tax:
In the UAE, there is no inheritance tax on property. This means that NRIs can pass on their property to their heirs without incurring tax liabilities.
5. Value-added tax (VAT):
One of the most significant changes in UAE’s tax policy is the introduction of VAT in 2018 at a rate of 5%. VAT is applicable for most goods and services.
6. Corporate tax:
Historically, the UAE had no federal corporate tax, although some Emirates imposed a limited corporate tax on certain businesses like oil companies and foreign banks. A federal UAE corporate tax was recently introduced in June 2023. The applicable tax rate is 9% on business profits exceeding AED 375,000. NRIs involved in business activities in the UAE are subjected to corporate tax as per these provisions.
7. Free zones:
Businesses in free zones earlier enjoyed various tax incentives, including exemptions from corporate taxes, for a certain period. However, as per the new policy, businesses in free zones can enjoy the tax incentive benefit only upon meeting specific criteria.
8. Excise tax:
This was introduced in October 2017 and levied on specific goods. This includes goods like energy drinks and tobacco that are considered harmful to the environment and human health.
9. Transfer pricing rules:
New transfer pricing rules introduced in October 2023 are aligned with OECD guidelines. This rule requires businesses to maintain appropriate documentation to support their intercompany transactions.
10. Economic Substance Regulations (ESR):
Introduced in 2019, these regulations require businesses in free zones and the mainland to demonstrate substantial economic presence in the UAE to prevent harmful tax practices.
Regulatory Changes: Old Vs New
Tax policies and regulations | Old | New |
Personal income tax | No personal income tax | No change |
Capital gains tax | No capital gain tax | No change |
Property tax | No annual property tax | No change |
Inheritance tax | No inheritance tax | No change |
Value-added tax | Introduced in 2018 and levied at 5% rate | No change |
Corporate tax | Limited to specific sectors | Federal corporate tax was introduced in 2023 and levied at a 9% rate |
Excise Tax | Introduced in 2017 | No change |
Transfer Pricing | Limited regulations | New rules aligned with OECD guidelines |
Economic Substance | No specific requirements | ESR introduced in 2019 |
NRI Tax Filing Requirements in the UAE
As no personal income tax is imposed, there are no tax filing requirements for NRIs in the UAE. NRIs do, however, need to register with the Federal Tax Authority and renew their UAE Tax Residency Certificate annually as proof of their tax residency in the UAE jurisdiction, in order to comply with requirements of the India-UAE Double Taxation Avoidance Agreements (DTAA). If an NRI is involved in business operations in UAE, they are subjected to corporate tax on profits. Businesses run by them must also determine their tax residency status as per UAE tax residency rules and they must file annual corporate tax returns by registering with the Federal Tax Authority (FTA). NRIs can further leverage India-UAE DTAA provisions to claim NRI tax exemptions, and reduce their tax liabilities.
Tips to Navigate Taxes Efficiently
- Leverage UAE’s favourable tax environment by investing in assets like stocks and property. Take advantage of DTAA to avoid double taxation.
- Keep a detailed record of all income and expense transactions for accurate reporting and tax filing.
- Seek help from tax professionals who can guide you on NRI tax compliance in UAE and India and help you optimise tax liabilities.
Conclusion
Staying up-to-date on tax compliance and regulatory changes in both India and the UAE is essential for NRIs living in the UAE to plan taxes efficiently. Utilising the available resources and seeking professional advice can help navigate tax compliance effectively.
