A 2022 Guide for American Expats: Everything You Need To Know About Paying Taxes In The United Arab Emirates
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Nothing written here is tax advice.
Table of Contents
Introduction
Paying Taxes In The United Arab Emirates—The Strait of Hormuz is formed by a finger of land on the Arabian Peninsula’s eastern coast jutting out and north toward Iran, creating the Strait of Hormuz. It pinches the water of the Persian Gulf as it flows into the Arabian Sea through the Gulf of Oman. This little territory is shared by two adjacent Arab countries: the United Arab Emirates (UAE) on the west and the bigger Oman on the east and further down the Arabian Peninsula. Saudi Arabia shares a southern border with the United Arab Emirates.
The United Arab Emirates’ geographical chokehold on the Persian Gulf, as well as its status as one of the world’s top 10 oil and natural gas producers, has brought them wealth and international renown. This is a viewpoint it shares with other members of the Gulf Cooperation Council (GCC), a regional economic and political union of Arab states that includes Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia and straddles the Persian Gulf for the most part.
The United Arab Emirates (UAE) is a confederation of kingdoms controlled by absolute kings from Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Quwain. The seven emirates are led by an elected President, follow Islam, adhere to Sharia law, and speak Arabic as their official language.
Expats should think about how the UEA’s judicial system works, particularly in terms of civil and criminal law. Non-Muslim expats are subject to “personal status regulations” that encompass marriage, child custody, and other elements of personal life such as attire and public behaviour, even though the UAE supports worldwide business and preaches religious tolerance of outside religions.
In fact, the federation has fought to improve both education and health care on a national level. For example, health insurance is required in Abu Dhabi for all residents, even expatriates, and the city attracts tourists seeking medical assistance from the surrounding GCC states as well as the rest of the world.
The climate of this sandy land is subtropical-arid, with hot summer months (July and August) and temperatures averaging 45 °C (113 °F) on the shore and milder in the highlands. Winter temperatures drop to roughly 14 degrees Celsius (57 degrees Fahrenheit). Mountainous areas receive substantially more precipitation than coastal locations, with annual rainfall averaging 120 mm (4-5 inches). Dust storms are another meteorological threat in this area.
A Guide For A US Expat Paying Taxes In The United Arab Emirates
This guide to US expat tax in UAE is designed to give you a broad overview of expat tax in the United Arab Emirates and how it affects your US expatriate tax return as a US expat in UAE.
All international income is subject to taxation and reporting as a U.S. taxpayer, and most expatriates are required to file an annual U.S. tax return due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment of several types of income varies substantially between the United Arab Emirates and the United States.
In the United Arab Emirates, for example, certain benefits may be tax-free or exempt from taxable income, whereas in the United States, these benefits are likely to be non-qualified benefits that must be included in taxable income. As a result, there are a number of things to think about when it comes to US expat tax in the UAE, and this short essay will go over a few of them.
Who Is Responsible For Paying Income Taxes In The United Arab Emirates?
Personal income tax is not levied on foreign nationals or residents of the United Arab Emirates. Corporate taxes are imposed in all seven kingdoms, but only on particular corporate organisations like as foreign energy-producing businesses and foreign bank branches. In fact, rather than owing money to the government in the form of income tax, a foreign national who has worked in the UAE for more than a year will receive an end-of-service benefit based on wages earned.
What Is The Average Tax Year In The UAE As Well As The Rules For Filing And Paying Taxes?
There is no separate taxation of capital gains because corporate profits are taxed. There are also no taxes on net assets, estates, or gifts.
Expats In The UAE Are Subject To Tax Withholding
Foreign nationals, unlike UAE and GCC residents, do not pay social security taxes or contribute to retirement funds. In terms of double taxation and Totalization Agreements, there are no difficulties (see below).
What You Should Know About Us Expat Taxes In The United Arab Emirates
There are a number of advantageous expat tax options that may assist your US expatriate tax return while dealing with US expat tax in the UAE. In fact, depending on your income, the Foreign Earned Income Exclusion (IRS Form 2555) and other deductions may allow you to pay no taxes in the United States.
The following are some of the favourable tax treatment or incentives available to US expats in the UAE:
If you are a U.S. citizen or resident alien living in the UAE, your US expat tax in the UAE is based on your worldwide income, and you must file a US return for all of the years you are staying in the UAE. As a U.S. expat, however, you may be eligible to decrease your taxable income in the United States up to the amount of your foreign earnings that is adjusted yearly for inflation ($99,200 in 2014). You can also exclude or deduct some overseas housing costs. The Foreign Earned Income Exclusion and the Foreign Housing Exclusion are two terms for the same thing.
A widespread but hazardous misconception is that if there are no taxes due as a result of these tax incentives, there is no need to file a return for US expat tax in UAE. That isn’t correct. If you work in a foreign country, you almost certainly meet the filing requirements and must file a tax return. It’s crucial to remember that preferential tax treatments like the overseas earned income exclusion won’t affect your tax liability unless you claim them on a filed tax return.
There are many tax things to consider when dealing with US expat tax in the UAE, but the aforementioned are by far the most typical preferred tax perks. With Tax Samaritan’s top-notch expat tax preparation, you can be assured that you’re only paying the minimum amount of US taxes that you’re legally required to pay.
Foreign Bank Account Reporting (FBAR) in the United Arab Emirates (FinCen Form 114)
Another major tax date that regularly affects US expat tax in the UAE is the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1) disclosure of foreign assets.
The deadline to file an FBAR is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, seeking an extension on your individual return does not result in an extension of the FBAR deadline — there is no such option. After this date, any reports filed are considered delinquent FBARs. Furthermore, unlike many other tax forms, the FBAR must be sent by the deadline date (and not postmarked by the deadline date).
When a U.S. person has a financial interest in, or signature authority over, a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy), the FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return).
You may meet the filing requirement to disclose your foreign accounts on the FBAR if you have bank accounts at Abu Dhabi Commercial Bank (ADCB), National Bank of Abu Dhabi, First Gulf Bank, Abu Dhabi Islamic Bank (ADIB), Al Hilal Bank, Dubai Bank, Dubai Islamic Bank, Emirates (NBD), Citibank UAE, and HSBC Bank Middle East (UAE Branch) or any other bank in the United Arab Emirates or any other foreign country.
Totalization Of Social Security Agreement Between The United States And The United Arab Emirates
The United States has signed into Totalization Agreements with a number of countries in order to avoid double taxation of income when it comes to social security levies. These agreements must be considered for evaluating whether an alien is subject to the Social Security/Medicare tax in the United States, or whether a U.S. citizen or resident alien is subject to a foreign country’s social security taxes. The United Arab Emirates does not have a Totalization Agreement with the United States since it does not withhold a portion of UAE-source income for retirement payments. In the UAE, there is no double taxation of social security income for US expats.
Tax Treaty Between The United States And The United Arab Emirates, As Well As Tax Relief For Us Expats In The UAE
The United States and the United Arab Emirates do not currently have a separate tax treaty.
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