The lavish lifestyle, Instagram-ready scenery and year-round sunshine are just a few of the reasons why the city of Dubai has become one of the most attractive places to live and work for people the world over.
It is estimated that around 240,000 British ex-pats have been drawn in by the lure of Dubai, moving there to work and live permanently.
If you are considering a move to Dubai, there are some important financial and tax implications to keep in mind.
Unravelling Dubai’s tax structure
Dubai is a city within the United Arab Emirates (UAE) and is globally recognised for its tax-free status on personal income.
For UK residents, the prospect of not having to pay income tax on earnings can be a significant reason for wanting to move to Dubai.
However, Dubai’s tax-free status does not extend to all forms of taxation.
The city imposes a VAT of 5 per cent on specific goods and services. Therefore, while your income might be tax-free, your expenditure in Dubai could be subject to this VAT. This is still favourable when compared with the UK’s VAT rate, which stands at 20 per cent.
Understanding the UK’s Statutory Residence Test (SRT)
The allure of tax-free income in Dubai might seem like an excellent opportunity to avoid taxes, but the reality is more complex.
The UK employs a Statutory Residence Test (SRT) to determine your tax residency status.
If you fail this test, you could still be deemed a UK tax resident, making you liable for UK taxes on your global income, despite living in Dubai.
The SRT takes into account various factors such as the number of days you spend in the UK, your residential status, and your work ties to the UK.
For instance, if you spend over 183 days in the UK within a tax year or maintain a home in the UK where you spend a significant amount of time, you could still be classified as a UK tax resident.
The risks of retaining UK tax residency
If you’re classified as a UK tax resident, you’ll be obligated to pay UK taxes on your worldwide income, which includes your earnings from Dubai.
Retaining UK tax residency can considerably diminish the financial advantages of working in Dubai.
Additionally, you may also face the risk of double taxation. However, the UK and UAE do have a double taxation agreement in place to prevent this.
While this agreement exists, it is important to seek professional advice to ensure tit covers your particular situation.
The Tax consequences of repatriating to the UK
If you choose to return to the UK after a stint in Dubai, you’ll regain your status as a UK tax resident. This means you’ll be liable for UK taxes on your global income.
However, there can be tax implications, especially if you have assets or investments in Dubai.
For example, if you sell a property in Dubai after returning to the UK, you may be liable for Capital Gains Tax (CGT) in the UK.
The prospect of working in Dubai can be financially rewarding, thanks to the tax-free income, and the lifestyle that comes with it is certainly attractive.
However, it is important to understand the tax implications and potential risks involved, both in Dubai and the UK.
Our tax professionals are ready to give you expert advice to ensure you’re adhering to all tax obligations and to understand how relocating to Dubai or repatriating to the UK can impact your tax situation. Contact us today.
