The UAE is one of the most prosperous countries of Southwest Asia due to its substantial oil reserves, open economy and diversification efforts. Currently more than 6.5 millions expatriates live in the UAE. Moreover, a majority of expats in the UAE resides in Dubai. Although, the UAE doesn’t have personal income taxes, American expats Dubai must file US expat tax returns if they meet the U.S. filing requirements. So US expatriates should learn more about foreign exclusion, FBARs and other overseas tax issues. Quite often we receive the following questions from expats Dubai. Should American expats file US expatriate tax returns if they are not subject to a personal income tax as expats Dubai? What is foreign earned income exclusion? What is foreign housing exclusion?
Expat Tax Rules for Expats Dubai and UAE
Many American expats do not realize that they are subject to US tax on foreign income. It means that American expats in the UAE have to file US expatriate tax returns and report a worldwide income even if they do not have any income from the USA.
However, American expatriates can take an advantage of several exclusions under under IRC section 911.
- Foreign earned income exclusion. American expats may be able to exclude up to $101,300 for YR 2016 on US expat tax returns if they have foreign earned income.
- Foreign housing exclusion. American expats can reduce US expat taxes by claiming several housing expenses like rent, utilities etc.
- Foreign tax credit. Since American expats in Dubai don’t pay a foreign income tax, this credit is not applicable.
American expats Dubai may be required to file the FBAR to report foreign financial accounts.
Tax system in the UAE – FAQ
What should American expats Dubai know about income taxes in the UAE when they file US expatriate tax returns?
The UAE doesn’t have personal income taxes. The UAE entity that employs the UAE citizens must make social security contributions. However, there is no such a requirement for expatriates.
Are there any additional taxes in the UAE?
The UAE doesn’t levy the zakat (an Islamic tax on property and income). Currently there is no sales tax or VAT on goods and services, although, there is a sales tax on alcohol. Some individual emirates including Dubai levy a 5% municipal tax on rents paid for residential apartments.
Does the UAE have a double-taxation treaty and social security agreement with the USA?
The UAE doesn’t have either an income tax treaty or totalization agreement with the USA.
These are some of the basic overseas tax issues that American expats Dubai should consider.
American expats with additional questions about the employment status in Dubai and how it affects their US expat taxes should consult an expat tax CPA that provides international tax services. International tax experts at Artio Partners will assist you before making a move and filing US expatriate tax returns.