Tax Made Simple for Americans in the UAE

With approximately 8 million Expats in the UAE, it is important that they understand the nuances of Taxes applicable to them. Even though the UAE is considered as a country having low taxes, Expat Americans have to pay the US Expat taxes irrespective of where they reside.

Taxes US Expat need to pay while living in the UAE

As already mentioned, the US citizens, including the permanent residents, are to file expatriate tax returns. Every year the tax return has to be filed with the US federal government by them. They are also supposed to submit Tax returns with the disclosure through FinCEN Form 114 (FBAR), regarding assets held, bank accounts details in foreign countries and the balance in such accounts.

The Federal Government of the United States is among the very few governments across the world that taxes the international income of the US citizens, and its permanent residents, staying abroad. However double taxation is prevented through the following means:

  • The Clause of Foreign Income Exclusion. This clause permits exclusion of an amount up to USD 105,900 (amount for 2019) from the income earned through foreign sources.
  • A tax credit that permits tax on the balance income will be reduced depending on the amount paid as taxes to the Government in the UAE.
  • There is the exclusion of foreign housing, expenditure to cover household expenses while living overseas.

Tax Rates for the UAE: 

Tax Return needs to be filed by most US Expats even though their tax liability amount is nil.

There is no federal tax in the UAE, nor is there a corporate tax. There is no income tax, or a capital gains tax, barring taxes for petroleum and finance businesses most companies are exempt from tax.

Value Added Tax, VAT @ 5% has been a recent introduction in the UAE, effective from the first day of the New Year 2018. The criteria for a business to get VAT registration are that it’s per annum taxable supplies and imports must exceed the threshold limit of AED 375,000. For those businesses whose supplies and imports are more than AED 187,500 per annum, registration under VAT is optional. Under VAT there is a provision for a refund to a business, from the government, the amount of tax it pays to its suppliers. This applies to foreign businesses visiting the UAE and paying VAT there.

United States Expat Taxes are due on the following dates:

  • April 15 every year with an automatic extension for Expats to June 15- Along with interest accruing on April 15th in case, the taxes are payable.
  • June 15 – unless extension filed for and allowed.
  • June 30 – in case FBAR form 114 is due.
  • October 15 – in case of receiving an extension.

Contribution to Social Security, during the stay in the UAE, is to be made to the US Social Security system at the time of paying Expat taxes in the United States. Expat employees need not contribute to social security in the UAE.

US Expats are not fortunate enough to have a Tax Treaty with the UAE since there is none.

Self Employment makes no difference from the point of view of paying taxes. Both an employee and a self-employed in the UAE are not subject to income tax. The income of USD 400 or more from self-employment is required to file US Expat taxes. However, it is important to understand that foreign investors should typically have a local partner in the UAE for being permitted to do business there.

For any further details regarding Taxation in the UAE, an American Expatriate is most welcome to consult the experts at GCC Filings. GCC Filings are the people who can advise appropriately on applicable taxes in the UAE and its implications on Americans in the UAE.

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