How does the tax system work in Abu Dhabi

Perhaps the most well-known fact about living and working in Abu Dhabi is that there is no personal income tax. Salaries, wages, bonuses, and investment returns are not taxed at the individual level. This is true for both UAE nationals and expatriates. The absence of income tax is one of the key factors that attract professionals from around the world. However, that doesn’t mean Abu Dhabi is a tax-free zone entirely—it just means taxation takes different forms.

Corporate taxation exists, but only for specific sectors

In Abu Dhabi, most businesses do not pay federal corporate taxes—unless they operate in certain regulated sectors. Oil and gas companies, as well as foreign banks, are subject to corporate income taxes under specific legislation. These entities may pay tax rates agreed upon in their concession agreements or as specified by federal law. Other companies, particularly those in free zones, often enjoy extended tax holidays or exemptions to attract foreign investment.

The UAE introduced federal corporate tax in 2023

As of June 2023, the UAE, including Abu Dhabi, implemented a 9% federal corporate tax on business profits exceeding AED 375,000. This move aligns the UAE with international tax transparency frameworks. Businesses operating in Abu Dhabi are now required to register with the Federal Tax Authority and file annual tax returns. However, small businesses and startups earning below the threshold are exempt, making the system progressive and business-friendly.

VAT applies to goods and services across Abu Dhabi

Since January 2018, Abu Dhabi has applied a 5% Value Added Tax (VAT) on most goods and services. This includes dining at restaurants, shopping in malls, hotel stays, and digital services. Tourists and residents alike pay VAT as part of their daily expenses. Businesses are required to register for VAT if their annual turnover exceeds a specified threshold, and they must issue VAT-compliant invoices for every transaction. For visitors, knowing that advertised prices may be VAT-inclusive is useful for budget planning.

VAT refunds are available for eligible tourists

If you’re visiting Abu Dhabi as a tourist, you may be eligible for a VAT refund on certain purchases. Through the UAE’s digital tax-free shopping system, some retail outlets participate in a program where foreign shoppers can reclaim VAT on eligible goods. You’ll need to provide your passport during purchase and validate the transaction at the airport before departure. Refunds are processed either in cash or via credit card, depending on the provider. Not all stores participate, so look for signs indicating VAT refund eligibility.

Excise tax applies to specific harmful goods

To support public health, Abu Dhabi levies an excise tax on products considered harmful to health or the environment. These include tobacco products, sugary drinks, and energy drinks. For example, a 50% or 100% tax might apply, significantly raising the retail price. This tax is separate from VAT and is typically already included in the shelf price. If you’re purchasing these items, no additional tax is charged at the register, but the cost reflects this policy.

No capital gains tax or inheritance tax applies

Investors often find Abu Dhabi appealing due to its zero capital gains tax on property, shares, or business sales. Similarly, there is no inheritance tax. However, in the absence of a formal will registered in the UAE, inheritance matters may be handled under Sharia law, depending on the individual’s nationality and legal agreements. Non-Muslim residents are advised to register wills with the appropriate legal entities in Abu Dhabi to ensure personal wishes are followed.

Real estate transaction fees and municipal charges exist

While there’s no property tax in Abu Dhabi, buying or renting property comes with associated fees. Real estate transactions involve registration fees, documentation costs, and in some cases, agent commissions. Tenants pay a small housing fee, usually embedded in their utility bills, calculated as a percentage of the annual rent. These municipal charges vary depending on whether you’re renting residential or commercial property and whether the landlord is a company or an individual.

Customs duties apply to imported goods

When shopping online or bringing goods into Abu Dhabi, customs duties may apply. Most imported products incur a 5% customs fee, although some items, like alcohol and tobacco, are taxed at higher rates. If you’re importing electronics, furniture, or bulk purchases, it’s worth checking the Abu Dhabi Customs Authority guidelines. Exemptions and thresholds apply for personal goods brought in during relocation, especially for first-time residents.

Tax residency rules support international treaties

Although the UAE doesn’t tax personal income, it issues tax residency certificates for individuals and companies who need them for foreign tax authorities. These certificates confirm that the applicant is a tax resident of the UAE and not liable for taxes elsewhere. This is particularly useful for expatriates who want to avoid double taxation under international treaties. To apply, individuals usually need to show they have lived in the UAE for at least 183 days in a calendar year and submit specific documentation.

This guide was prepared by www.few.ae team, based on the latest UAE tax regulations and administrative procedures specific to Abu Dhabi.