Starting a business in the UAE or Saudi Arabia can be exciting. Still, there are certain considerations to be aware of before getting started, particularly around taxes. From tax registration to attractive double taxation avoidance treatments, it pays to understand the system, how it works and how you can benefit as a business owner.
This guide will provide a basic overview of taxes and regulations that should be considered when starting a business in either country.
Each country has its taxation system and regulations. Therefore, before beginning operations in either location, it is important to fulfill all relevant obligations related to taxes and other issues, such as customs duties or employment payments.
The main Taxes to Consider When Setting Up Your UAE & Saudi Company before opening a company in the UAE or Saudi Arabia are outlined below:
- Registration with the Federal Tax Authority (FTA)
- Direct Government Taxes – such as corporate income tax
- Indirect Government Taxes – such as Value Added Tax (VAT)
- Customs Duties – applicable only when trading with goods from outside both countries
- Withholding Taxes – applicable on revenues generated from within both countries
- Fees and Charges on Services offered within both countries
Corporate Tax
is an important tax to consider when setting up a company in the UAE and Saudi Arabia. This tax is applied to a company’s profits and is sometimes referred to as corporate income tax. The amount of corporate tax a company is liable to pay is determined by the country’s tax laws. The UAE and Saudi Arabia have different corporate tax rates that companies should be aware of. Let’s explore the rates and implications of this tax.
Taxable Income
Regarding taxation, all UAE and Saudi Arabia businesses must pay five different taxes.
These taxes can be broken down as follows:
Corporate Income Tax
Tax on the income generated by a company is known as corporate income tax. All companies in the UAE pay a flat rate of 55% of taxable income as corporate income tax, while in Saudi Arabia, this rate varies from 0% – 50%. Businesses are also subject to anti-avoidance regulations through which authorities closely monitor any attempts by taxpayers to minimize their tax burden.
Value Added Tax (VAT)
Businesses engaging in commercial activities in the UAE and Saudi Arabia must pay a 5% Value Added Tax (VAT) on their sales transactions according to the federal laws governing the taxation of Goods & Services Tax (GST). The current exemptions list for VAT constitutes 153 items, including several basic groceries and food items, medical equipment, and educational services.
Business License Fees
Every company must register for issuing Business License/Commercial Registration showing that they conduct business activities from authorized legitimate locations such as industrial zones or offices within the themed trading areas such as Free Zones or outside Free Zones within designated Emirate areas controlling certain licenses, e.g., Dubai Media City controlling advertising license, etc., before they are allowed commence trading operations.
A corporation must also register with relevant departments depending on the nature of its business operation and pay applicable fees dependent on the duration of license renewal periods before the commencement of operations is permissible under the law governing the taxation penalty structure set by FCCA (Federal Competitiveness and Commercial Authority). This is yet another thing to consider when thinking about the corporate tax in the UAE.
Customs Duty
Companies conducting international trade or import need to comply with customs duties imposed on foreign products according to GCC Common External Tariff (CET) agreement designed for all six states found within Gulf Co-operation Council countries linked together through agreements allowing smooth flow without imposition trade barriers between countries included its coverage area signed by respective ruling sovereign governments responsible for setting their import duties structure imposed across concerns related imported goods categories registered without enforcement violations monitored strictly be GCC appointed authority officials based out located Abu Dhabi.
Tax Rates
When setting up a business in the UAE and Saudi Arabia, it is important to be aware of the different kinds of taxes a company may be liable for and the applicable tax rates. Different types of taxes include -VAT (Value Added Tax): This is an indirect tax applied on purchases and sales in the UAE and Saudi Arabia and varies from 5% to 15%, depending on the type of purchase or sale.
For example, luxury items such as cars are subject to 15%. -Corporate Taxes: Companies in these countries are liable for both corporate income taxes at a rate of 14% on net profits and withholding taxes collected from sales-related transactions at up to 10%.
Excise Tax
This tax applies primarily to certain goods and services, including tobacco products, petroleum products, beverages, etc. The rates vary accordingly based on the item being taxed. Depending on the services or products you offer, you may need to consider this type of corporate tax in the UAE.
Land Tax
This is a municipal tax imposed on land owners when they own idle or unoccupied property. The rate varies depending on location but generally ranges between 0.25% and 2%. It is important to remember that different regions within the UAE or Saudi Arabia may have specific local regulations regarding corporate taxes, so it’s always best to research beforehand.
Understanding all relevant taxation policies will help you better prepare your finances when setting up your business in either country.
Tax Exemptions
The UAE and Saudi Arabia offer several tax exemptions, but they vary according to the type of company that is formed. Generally, companies based in the UAE will be exempt from corporate taxation if they maintain a physical presence in the country and comply with other requirements. In Saudi Arabia, many companies are eligible for generous tax breaks through its Value Added Tax scheme, which can significantly reduce business costs. The process for gaining tax exemptions or reduced rates may differ depending on company type.
Common exemptions or reduced rates include:
Profits generated from certain services may be exempt from taxation -VAT rebates may be possible for certain goods and services -Services rendered related to manufacturing activities may not attract any taxes -Companies operating in special economic zones can often benefit from additional benefits such as a more attractive VAT rate -Investment deductions can sometimes reduce corporate taxes
Each jurisdiction has its own rules and regulations around corporate taxes, so it’s important to understand your obligations before committing to any new venture. Seeking the advice of experienced professionals can ensure your company’s financial dealings are compliant with current laws and regulations.
Value Added Tax (VAT)
Value Added Tax (VAT) is a type of indirect taxation where the consumer pays the tax on the value of goods or services they have purchased. When thinking about the corporate tax in the UAE, you must consider the VAT.
VAT was first introduced in the United Arab Emirates and Saudi Arabia in 2018 and is currently being implemented in both countries. It is important for any company setting up business in either of the countries to understand the implications of VAT on their business to remain compliant.
Taxable Transactions
Value-added tax (VAT) is one of the taxes that companies must consider when setting up their business operations in the United Arab Emirates and Saudi Arabia.
According to Dubai’s Federal Tax Authority, most local goods and services and imports into the UAE and supplies made in or imported into Saudi Arabia are subject to VAT. Generally, any taxable supply of goods or services between two taxable persons that utilize a consideration will be subject to VAT. It is important to note that there are exceptions, such as basic food items and other exempted items.
The taxable person responsible for accounting for the VAT must generally issue an invoice with their relevant registration information and the other relevant information specified by law. As per applicable legislation, certain supplies need not be invoiced if VAT is applicable.
The value-added tax rate for taxable supplies in both countries is 5%. In addition, select industries such as banking & insurance may be eligible for a reduced rate of 0% or 3% depending on national rules & regulations.
Before starting a business in either country, it is always best to contact government authorities to ensure that all financial obligations are met from day one of procedures like registering & taxation compliance.
Tax Rates
Regarding Value Added Tax (VAT) in Dubai and Saudi Arabia, companies must pay up to 5 percent of the price of goods they supply or services they render. Goods deemed “tax-exempt,” such as health and educational items, will not incur any tax. Tax rates differ in different Emirates/Kingdoms of Saudi Arabia, and excise taxes may also be applicable depending on the type of product/service being provided.
The government determines the applicable tax rate depending on the nature and purpose of the products sold or services rendered. Generally, here is a breakdown of typical VAT rates: -Standard rate: 5% -Reduced rate: 2%; applied to specification goods, foodstuffs, and certain commodities, including certain types of educational services -Zero rate: 0%; applied to exported goods, healthcare services or other goods specified by the government -Exempted category: 0%; exempt from paying VAT; generally refers to properties/lease agreements for residential use by individuals as well as financial services
The taxation system differs between countries under GCC’s umbrella but all have adapted similar regulations when it comes to taxation policies. Companies should register with federal and local fiscal authorities to be eligible for taxation; this does not necessarily create an obligation but allows local fiscal authorities access to audits if necessary.
Tax Exemptions
Value Added Tax (VAT) is a tax charged on many goods and services purchased in UAE and Saudi Arabia. Each country sets the VAT rate but it typically ranges from 5% to 20%, depending on the country’s tax regime. Certain items may be exempt from VAT, such as basic foodstuffs, health care, and educational items in some countries.
For companies setting up their operations in UAE or Saudi Arabia, it is important to understand what goods or services are tax-exempt under the given jurisdictions. UAE: UAE does not currently impose any value-added taxes on domestic sales; however, those that import goods into the UAE will be subject to the 5% value-added tax (which ultimately will be levied on customers that purchase those goods). Certain items, such as basic foodstuffs, healthcare-related products, and educational supplies, are exempt from value-added taxes in UAE.
Saudi Arabia: In contrast to UAE, Saudi Arabia imposes a 5% value-added tax on domestic sales of most items, with only certain exemptions, such as pharmaceutical drugs, education-related materials, and religious books being exempt from this taxation scheme.
In addition to Value Added Taxes incurred through domestic purchases, import taxes for any imported items sold within Saudi Arabia can range anywhere between 0-18%. It is important for entities establishing operations within Saudi Arabia to familiarize themselves with the local taxation laws to ensure an understanding of all applicable taxes incurred when making purchases domestically or importing materials into the country.
Withholding Tax
When setting up a UAE or Saudi company, one corporate tax in the UAE to consider is withholding tax. Withholding tax is a type of tax deducted at source from certain types of income, such as salaries, wages, and investments. It is the responsibility of both the employer and employee to make sure the correct amount is withheld and sent to the proper authorities. In this article, we’ll look at the UAE and Saudi withholding tax laws and how they apply when setting up a company in either of those countries.
Taxable Transactions
Taxable transactions are those activities where there is a presumption of income or profit made, and withholding tax rules should be considered. Specifically, the taxable transactions covered by withholding tax rules are services rendered (such as professional fees or management fees); movables supplied/sold, immovables supplied/sold (land and buildings lease/rental), and any payments made towards repatriation of expatriate employees.
Therefore, to determine whether a particular transaction is taxable, it is important to examine the source of profits that made such income possible. If the activity involves an element of work performed and exchange for remuneration, there is likely to be an expectation of generating either income or profit from the such exchange. Generally speaking, all business-to-business transactions come under the scope of withholding tax regulations in Saudi Arabia and UAE except those specifically exempted under relevant law(s).
Equally, business-to-consumer sales may also be subject to taxation in certain cases. To understand more about which activities fall within the scope of taxation in Saudi Arabia & UAE, it’s best to seek professional advice to ensure you’re properly informed regarding your company’s obligations under local laws when setting up your UAE & Saudi company.
Tax Rates
Corporate income tax rate in the UAE and Saudi Arabia is levied on business income earned by standalone companies, which differs depending on the country. In the UAE, federal legislation has established a standard corporate tax rate of fifty-five percent (55%), while individual Emirates offer exemptions or incentives to certain industries that help stimulate economic growth. However, in Saudi Arabia, no business income tax is imposed under current regulations.
In addition to the differences in federal or regional rates, withholding taxes are also payable for certain business transactions. Your company should always review the withholding requirements for payments such as dividends or interest remittance to foreign parties and consider ways to minimize associated taxes during their financial planning process. UAE: Withholding tax (also known as “relevancy”) is applied at a rate of up to 20% on dividends remitted outside the UAE.
Interest payments over AED 3 million and royalties paid outside of UAE may be subject to withholding tax when no Double Tax Treaty (DTT) applies; fees paid under contract are not subject to withholding taxes in general.
Saudi Arabia: Withholding tax corresponds to Zakat, which is payable for dividend payments made outside of KSA with a rate between 0–2%, according to DTTs applicable between each country; no withholding duty needs to be withheld for royalties and interest payments unless specified differently by DTTs; contracting services have specific criteria regarding withholdings in all cases, but no deductions from salaries in general.
Tax Exemptions
As with most countries, the UAE (United Arab Emirates) and Saudi Arabia have customary tax exemptions concerning certain entities, income, and activities. Each nation has a unique set of exemptions that can help reduce the amount of tax owed. Understanding the international tax rules for fiscal soundness is essential for proper financial planning when doing business in any country. UAE: The UAE provides various types of taxes, such as corporate income tax and withholding tax on salaries paid to non-residents; however, under certain conditions, some entities may be exempt from taxation in the UAE.
These include:
- Nationals not resident in the UAE may be exempted from taxation on any income they derive outside or within the country.
- Insurance products imported into or exported from free zones may also be exempt from taxes when they meet certain criteria or conditions listed under applicable laws and regulations.
- Share transfers between related parties in free zones may also be exempt under applicable rules determined by local authorities.
- Entities that operate within an area designated as a “free zone” generally benefit from no corporate taxes.
he Kingdom of Saudi Arabia imposes numerous types of taxes, such as withholding taxes and corporate income taxation; however, it offers various exemptions, such as exemption on foreign sourced income derived by companies located offshore (with the condition that it is not transferred to the mainland).
Exemptions in KSA may also include:
- Foreign banks and their branches operating through representative offices in KSA, except those existing before 15 August 2005, are provided 100% exemption on profits up to 30 June 2021.
- International businesses whose managing office is located outside KSA are completely exempt from withholding tax collected at source for license fees; royalties; Agency services; professional fees; technical services etc., regardless of where these receipts originate from (in line with double taxation treaties).
- Private companies are also entitled to a full exemption for up to 5 years if meeting criteria stipulated by legislation governing approved new companies based outside KSA.
Excise Tax
Excise tax is a mandatory tax imposed on certain goods in the UAE and Saudi Arabia. This tax is intended to discourage the consumption of certain goods in the country and is typically paid on energy drinks, tobacco, and other items. In this article, we’ll look at excise tax and how it impacts setting up your UAE or Saudi company.
Taxable Transactions
In addition to the income tax applicable to each financial year, there is also an excise tax on certain taxable transactions carried out in the UAE and Saudi Arabia.
- Transactions subject to rail tax include
- Certain carbonated and non-carbonated soft drinks and energy drinks;
- Cigarette, cigar, and shisha products;
- Tobacco, snuff, and chewing tobacco;
- Prepared food services (including restaurant meals);
- Certain luxury paper products including water pipes and cigarettes; •Sporting activities (including equipment rentals);
- Tickets for certain entertainment (e.g., shows);
- Other similar activities as determined by law.
These taxable transactions may be subject to different rates of tax depending upon the product or service being provided or purchased. The rate may change from time to time, so it’s important to consult a qualified professional to ensure compliance with the related regulations when setting up your UAE or Saudi company.
Tax Rates
Excise taxes are taxes imposed on specific goods or services at a fixed rate. They are often used to cover the cost of recovery of public goods, prevention of negative externalities, and deterrence of behaviors like smoking or drinking. Different government bodies, such as state and federal governments, impose different rates for excise taxes. At the federal level, some popular excise tax categories include those for fuel, tobacco products, and firearms.
These taxes can feature tiered tax brackets based on the value of the item being taxed.
For example, Congress has established 3 different tiers for tariffs on cigarettes; from 2018 to 2020, cigarettes costing less than $50 per 1,000 sticks are subject to a tax rate of $1.0066; middle range cigarettes between $50-$100/1000 sticks incur a rate of $1.0966; finally, higher priced cigarettes over than $100/1000 sticks suffer a tariff of $2.8329 per 1,000 units sold.
In addition, cities and counties often levy their sales and use taxes on items like cars and alcohol to raise money for local initiatives or organizations in their community.
Finally, states may impose certain excise taxes depending on their jurisdiction’s laws or popular practices within that region.
California’s state gas excise tax rests at 25 cents per gallon, with charges from local government entities potentially adding up to an even higher total amount paid in taxes when filling up your car at the gasoline station.
Tax Exemptions
When setting up a UAE Saudi company, it’s important to consider excise taxes. Excise taxes are indirect taxes levied on certain goods and services, such as gasoline, alcohol, and tobacco products. If a company produces or sells items subject to an excise tax, the company is obligated to pay that tax.
However, some exemptions may apply when calculating the excise tax due for a particular product or business activity.
Examples of common excise tax exemptions include:
- Goods exported outside the country
- Food items – Essential medicines and medical supplies
- Fuel used in non-commercial flight operations
- Refundable taxes applied on beverages and fuel dispensed at public refueling points
- Tax collected from dealers who are registered with the Ministry of Commerce and Industry (MOCI) It’s also important to be aware of other specific circumstances in which an exemption may apply.
Therefore, you should always consult with your local tax authorities for assistance in understanding any applicable exemptions and how they may affect your company’s liability for excise tax payments. Properly calculating applicable taxes is essential for ensuring compliance with governmental regulations in UAE and Saudi Arabia.
Everything to Know About Corporate Tax in the UAE – Summary
In conclusion, when a company is setting up operations in the UAE and Saudi Arabia, various taxes exist. Depending on the type of business activities and the profits earned, there can be Value-Added Tax, Corporate Income Tax, Customs Duties, and other taxation obligations. It is important to know all taxes relevant to the particular activity and budget accordingly.
Therefore, it is recommended that companies seeking to operate in the UAE or Saudi Arabia consult with qualified professionals to get an accurate assessment of their tax liabilities before making any decisions.
Taking advantage of appropriate tax exemptions and deductions also helps minimize overall taxation levels while ensuring that all applicable obligations are met promptly.
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