2.1 Dubai Individual Business Tax Residence Rules
As there are no personal or corporate income taxes in Dubai, the issue of tax residency in Dubai is more to do with an individual’s home country of origin and in ensuring that full Dubai residence is acquired for a long enough period (usually at least two years) to avoid taxation of income derived from business activities in Dubai in their home country.
Other things to consider when taking up tax residence in Dubai, that may be viewed by the tax authorities in the home country as potential red flags can include property retained for use (long-term rental or sale might be a good option), bank accounts and investments, and spouses or children resident in the country of origin. However, this will vary according to the country in question – professional advice in this regard is a necessity.
Dubai has a number of double taxation treaties in force though notably, none at present with the United Kingdom.
2.2 Dubai Permanent Establishment
The OECD convention covering a Permanent Establishment applies to companies set up in Dubai. The definition requires that, to be classified as a Permanent Establishment, a business must be either:
• A place of management;
• A branch;
• A factory;
• A workshop;
• A construction site with a project that will last more than 12 months.

A business will not be classified as a Permanent Establishment if it has premises used only for storage and movement of goods, or on behalf of another entity. A Permanent Establishment must have a manager or director present in the jurisdiction and resident in Dubai for at least 51% of the year and a manager or director so nominated must also have a residence in Dubai in their own name. Failure to comply could mean the loss of tax-free status and any other benefits enjoyed by offshore enterprises.
2.3 Dubai Individual Income Tax Rates and Bands
There are no personal taxes in Dubai other than import duties, a small residential tax (10%) based on rental value and a 5% tax on hotel services and entertainment.
2.4 Dubai Personal Allowances and Business Deductions
Some employers pay travel and accommodation costs for certain employees. If both parties are Dubai residents, there are no tax implications due to the zero tax status of the emirate. If the employee is a foreign worker but not a Dubai resident, any ‘fringe benefits’ may be liable to tax in their home country.
2.5 Dubai Husband and Wife Partnerships
Special rules governing husband and wife partnerships or companies: There is nothing to stop a married couple being in business together, either as partners, or directors of a business entity (incorporation) or with one working for the other in a sole establishment set-up.
Although there are no income tax issues to consider (due to the effective absence of personal and corporate income), the fact that Sharia Law governs inheritance in Dubai means that legal advice should be sought when setting up a business in which the husband and wife are to work together, as the eldest male heir is likely to automatically inherit, unless alternative arrangements are put in place.
2.6 Dubai Partnership Income Taxation
There is no corporate or personal income tax in Dubai, except for banks and hydrocarbons companies, which can pay up to 55% and 20% respectively.
2.7 Dubai Limited Companies Income Taxation
By law, all companies in Dubai are required to pay tax on earnings, at least technically speaking. Taxes are calculated on a sliding scale, with a maximum rate of 55%. A business with income between AED2m and AED3m will (theoretically) be liable to pay 20% corporate tax, 30% on earnings between AED3m and AED4m, and up to 55% on earnings of more than AED5m.
However, in reality only companies engaged in the oil, gas and petrochemical industries actually pay tax (at 55%), as do branch offices of foreign banks (at 20%). So despite the law, the vast majority of companies and individuals pay zero tax.
2.8 Dubai Business Profit Retention
Rules governing the retention of profit in formal business structures: This is not an issue in Dubai’s (effectively) tax-free environment.
2.9 Dubai Business Losses
The tax treatment of business losses: Where corporate tax is payable, it is possible to carry forward losses for two years; no carry-back is permitted.
2.10 Dubai Value Added Tax (VAT)
There is no VAT in Dubai. The UAE federal government has been talking about introducing a VAT for some years now, but progress has been very slow and VAT is not imminent.
2.11 Dubai Individual Business Capital Gains Tax (CGT)
Capital Gains Tax: Dubai does not levy any capital gains tax.
2.12 Dubai Individual Artists' Royalties
The collection of royalties by individuals: There is no liability for tax on royalty payments received in Dubai. It's possible that royalties may have been subject to withholding tax in the country of origin; if there is a Double Taxation Agreement between Dubai and the other country, this will determine the tax treatment of such payments.
2.13 Dubai Individual Business Tax-Efficient Profit Distribution
Choosing between dividends, salary and fringe benefits: At present there is no tax in Dubai on the distribution of dividends or on receipt of fringe benefits, rendering the choice between compensation via dividends, salary and fringe benefits for the most part an unnecessary one.