US Expat Taxes Explained: Filing Taxes as an American Living in the UAE
The UAE has an expatriate population of more than 7 million and rising and is internationally renowned as center for finance and commerce in the Middle East. In addition, it is increasingly promoting itself as a tax haven. As an expatriate American, however, you continue to be subject to US expat taxes no matter where you live. This somewhat dilutes the low tax appeal of the UAE. This guide will help you understand your tax responsibilities as an American expatriate in Abu Dhabi, Dubai, or any of the other of the United Arab Emirates.
US Expat Taxes in UAE
If you are a citizen or permanent resident of the United States, then you are obligated to file US expat taxes with the federal government each year whether you reside in Albuquerque or Abu Dhabi.
In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.
In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts. While the US is one of the few governments that taxes the international income of its citizens and permanent residents, it does have special provisions to help protect us from double taxation including:
- The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
- A foreign tax credit that could allow lower your tax bill on your remaining income by certain amounts paid to a foreign government, and
- A foreign housing exclusion that allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.
With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate you liability on US expat taxes. Please do note that even if you do not believe that you owe any US expat taxes, you will still be required to file a return. For more information, see US Expat Taxes Explained: An Overview of Our New Series.
UAE Income Tax Rates
There is no federal tax legislation in the United Arab Emirates, and the UAE is a ‘no tax’ country. There is no income tax, no corporate tax, no withholding or capital gain tax and no sales or value-added tax (VAT), except upon certain items depending upon the Emirate. The government has considered introducing VAT, but there are no plans to do so in the near future. Certain businesses, most notably in the finance and petroleum producing industries, are subject to taxation but most corporate entities are exempt.
UAE Tax Due Date
There is no income tax collected on individuals and no return is required to be filed. In addition, foreign income (from outside the UAE) is not taxed by the UAE. This gives you more time to focus on your US expat taxes.
UAE Social Security Implementations
Expatriate employees are not required to make social security contributions. Again, part of your US expat taxes will be paying into US Social Security.
US Tax Treaty with UAE
The UAE has tax treaties with a number of countries but not with the United States. Luckily, the taxation on your US expat taxes is the only taxation you will see on your UAE sourced income.
Implication of Being a Self-Employed American in the UAE
Again in the United Arab Emirates most businesses and no individuals have to file or pay income taxes. Therefore, the difference between self-employed and employees is almost not relative in relation to taxes. The UAE offers seven distinct business entities that provide various degrees of legal protection and require different reporting and compliance obligations. However, as there are no corporate taxes on most businesses, there are no tax consequences related to the different entities. Note that the foreign investor is generally required to have a UAE partner in order to do business in the UAE.
As a reminder, you are required to file US expat taxes if you have earned $400 or more from self-employment