Dubai, one of the seven regions which comprise the United Arab Emirates (UAE), is well known for its tax-free living. In fact, none of the seven regions of the UAE impose a federal income tax, even though they are legally within their rights to do so. In the Arab world, it is considered haram or forbidden to take unearned income, which taxes are considered. There is also no property tax in Dubai. There are, however, social security levies that local citizens must pay and some corporate taxes.
Individuals who live in Dubai pay no tax on income, property, or capital gains. This does not mean that there are no taxes at all, however; import duties, which are taxes on goods imported from outside the country, are charged, as are taxes on property rental payments and some hotel and entertainment services. Local citizens contribute a small percentage of their income to social security. There is no sales tax, but there are high taxes on alcohol and other products that are considered haram. Although value added tax (VAT) — a consumption tax similar to sales tax — is not charged, the International Monetary Fund (IMF) has recommended that the UAE consider implementing such a system.
There is no corporate income tax for most businesses located in the UAE; however, Dubai does tax the income from foreign banks and oil companies. The region also contains a number of economic free zones, which offer economic incentives to encourage investment and commercial development. While these free zones are not entirely tax free, the incentives offered there make them come very close. Companies which are run within free zones are given certain tax exemptions for at least 15 years, at the end which they may request an exemption for another 15 years. In addition, there are no import or export taxes in the free zones.
Dubai Free Zones
As of 2011, there were 18 free zones in the region, including Dubai Aid and Humanitarian City, Dubai Airport Free Zone, Dubai Internet City, Dubai Silicon Oasis, Jebel Air Free Zone, and Dubai Media City. The Jebel Ali Free Zone, created in 1985, was the first of these economic zones. The government has since invested billions of dollars into infrastructure and programs to coax foreign investors to the region.
In the 1990s, Dubai Internet City and Dubai Media City were created. These zones offer many of the same benefits of other free zones, but cater directly to media and communications companies. In these zones, tax free status is initially granted for a 50 year period. The Dubai International Financial Centre was created in 2004. This zone is entirely tax free for corporations operating within its borders, with no constraints on how long they can maintain that status.
About the UAE
While Dubai itself is not entirely tax free, it might be as close to tax free as a person can get. The United Arab Emirates was formed in 1971, when the UAE gained independence from the United Kingdom, and it has been an important and wealthy nation ever since. Oil revenues allow the government to operate without depending upon taxes, although the IMF has encouraged the country to diversify its revenue sources.