How to Understand Tax in UAE

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February 3, 2020

Expat tax affairs can be complicated and difficult to navigate.

A common mistake for British expats to assume when they first consider moving to the UAE is they are instantly exempt from UK tax. 

The tax requirements for UK expats are not straight forward.

Here we will break down the complexity surrounding taxation, make it clearer. If you still find yourself asking questions, the Ai Investment Group team are here to provide you with more information! 

The UAE is largely a tax-free country with massive tax advantages for those who live and work here, but there are circumstances in which you will be required to pay taxation in some form or another.

We’ll be looking at the 3 main taxable assets when moving/living in the UAE as an expat.

  1. Will I pay personal income tax on my UAE income?
  2. Do I have to pay tax on my UK Pension?
  3. Is there tax on buying a property?

Will I pay personal income tax on my UAE income?

UK expats with cash investments and property, in more than one country, should have a local adviser in each location. Primarily ensure they are keeping up with the latest changes. 

The two important aspects of tax are residence and domicile. 

A Tax Residency Certificate or sometimes called a Tax Domicile Certificate is an official certificate or document which is issued by the Ministry of Finance of UAE. This can be issued to either companies inside the UAE for at least 1 year, or individual’s with a UAE residency visa / permanently residing to UAE for a minimum of 180 Days.

To become a tax resident in the jurisdiction of the UAE, you will be required to first file a set of standard documents. Most importantly you’ll have to obtain a residency visa first. 

This can be done by purchasing real estate on the territory of UAE or registering a company in the Emirates.

Many new expats who land in the UAE breathe a sigh of relief after leaving the UK, failing to know they may still have an ongoing tax liability!

The tax authorities can still catch up with you, particularly if you still have personal income earnings in the UK, such as rental income, dividend payments, savings interest and royalties, or capital growth on stocks or property.

For example, if you are a tax resident of the UK and you own a property in Dubai that you earn a rental income from, you are required to declare this income on your British tax return and potentially have to pay tax on it.

This is also true if you move to the UAE for 6 months to live and work but remain a tax resident of the UK. In this case you’re still subject to taxation in the UK. Alternatively, if you move permanently to the UAE and are out of the UK for a full tax year, you may be able to earn a 100% tax-free salary in Dubai under the following conditions from HMRC:

  • You are absent from the UK and not employed in the UK for more than one full tax year.
  • You spend less than 183 days in the UK during the tax year.
  • You average less than 91 days a tax year during your visits to the UK for a maximum period of 4 consecutive years (normally, for tax purposes days of arrival and departure are not counted as days spent in the UK).

Everyone’s situation is different and we advise you get in contact to seek help from our friendly team of professionals.

Do I have to pay tax on my UK Pension?

For UK expats, once you reach the retirement age of 55, normal UK pension rules allow 25% of your pension to be paid tax free, with the remaining 75% subject to income tax.

Thanks to the tax treaty that was signed between the UK and the United Arab Emirates in 2016, payments received from a UK pension plan by a resident of the UAE, will only be subject to tax in the UAE.

As the UAE does not tax personal income, it means you will not pay any tax on the payments from your UK pension!

This means you can fully encash your pension, tax free if you satisfy the Statutory Residence Test 2013 in the UK, which means an individual must be no longer regarded as a non-UK resident.

There are a few different options when accessing your UK pension abroad:

  • Qualifying Recognised Overseas Pension Scheme (QROPS)

A popular option for many expats in the UAE, and indeed expats in general, is to set up a QROPS. Expats in the UAE can simply transfer their pension into a QROPS once they lose the tax benefits of saving in the UK, and can make further contributions towards their retirement. Please be aware that a QROPS can come with a 25% tax charge.

It’s common to set up a QROPS in a third party jurisdiction, this is common practice for international retirement planning.

  • Self-invested personal pensions (SIPPs)

A secondary options Expats typically follow is SIPPs. A type of personal pension for individuals who are comfortable and have the correct level of understanding to make their own investment decisions. 

As such, SIPPs tend to be more suitable for people who have knowledge in investing and have previously invested or have active investments. 

SIPP investment is a sliding scale you have full control over from minimum risk and minimum investment to maximum investment and maximum risk/ 

Ai Investment Group specialises in implementing the best retirement plans for your investment. We work with you to manage your wealth and investment opportunities to maximise your assets.

Read more on the different types of pension schemes in: The Ultimate Expat Guide to Retiring in the UAE.