For the past 30 years, the population of international migrants to the United Arab Emirates (UAE) has steadily increased. According to the United Nations, international migrants made up nearly 90% of the UAE’s total population.
The UAE does not levy income tax on individuals, motivating many expatriates from numerous countries to move to the UAE.
Nevertheless, it is important for American expats and nomads to understand their tax obligations when moving to Dubai. As an American expatriate, you are still subject to U.S. income tax laws regardless of where you currently reside.
Keep reading to learn more about U.S. expat taxes in Dubai and when to seek guidance from an international tax attorney or CPA.
What an Expat Should Know About U.S. Tax Compliance in Dubai (UAE)
Tax Legislation in Dubai
It is important to understand what tax obligations you will have when moving to a new country. What are the U.S. Federal income tax requirements that a U.S. expat needs to be aware of and are there differences compared to domestic U.S. tax filings.
The United Arab Emirates does not levy income tax on individuals. Overall, the UAE has legislation that imposes a corporate tax on foreign banks and oil companies. Companies outside of these industries do not have a corporate tax obligation in the UAE.
Because there is no individual income tax legislation, U.S. expats living in Dubai are not subject to income tax in the UAE. That being said, this does not mean that U.S. expats will not have to file U.S. federal or state tax returns.
Is There a U.S. – UAE Tax Treaty?
Before examining the income tax requirements for a U.S. expat living in Dubai, you may wonder, “Does the United States have a tax treaty with the UAE?”
Generally, a tax treaty exists between two countries to prevent double taxation. Double taxation refers to a taxpayer paying income tax twice on the same source of income to two different jurisdictions/countries. This can refer to individual and corporate tax levels. To avoid double taxation, the UAE has Double Taxation Agreements to support overseas investments in the country.
While the UAE has tax treaties with numerous countries, there is currently no tax treaty between the U.S. and the UAE
U.S. Tax Obligations for Expats in Dubai
Because the U.S. does not have a tax treaty with the UAE, U.S. expats living in Dubai need to file their U.S. Federal income tax returns each year, and in some instances a State tax return as well.
In addition, U.S. expats living in Dubai/UAE must comply with FBAR and FATCA requirements on foreign assets if they meet the threshold for filing. U.S. expats must disclose on their U.S. tax returns that they have foreign bank accounts regardless of the balance in the account. This tax obligation applies to all U.S. tax filers, living within or outside the United States, who have foreign financial assets such as bank accounts, cash value life insurance policies, retirement accounts, cash in brokerage firms, and other financial assets.
When filing a U.S. Federal tax return (Form 1040) with the IRS, U.S. expats must also file FinCEN Form 114, known as the FBAR, with the U.S. Department of Treasury.
UAE banks began adapting FATCA requirements in 2014, which requires banks to report accounts held by U.S. taxpayers to the U.S. Department of Treasury. The Treasury and IRS audit these FATCA reports and match them up with individual tax returns to verify FBAR filings. If there is a mismatch or missing form or incorrect IRS tax return, the filer can expect a notification from the IRS, which could lead to complications if not handled in the proper manner.
When to Seek Guidance From an Experienced Tax Law Attorney
U.S. Federal tax compliance can be confusing to navigate, especially for U.S. expats. Overall, many expats don’t file their annual tax returns because they don’t understand their tax responsibilities are or don’t know they are required to file.
If you do not understand what your U.S. tax filing obligations are while living in Dubai, you can unknowingly make mistakes filing your taxes. As a result, you could face monetary penalties, interest charges and back taxes, IRS audits, and more.
Whether you’re looking to become tax compliant or plan to move to Dubai, U.S. expats should consult with the expat tax experts at Tax Law Expats before filing or contacting the IRS.
By contacting our managing partner, Jason Kovan at Tax Law Expats first, you get to consult with an experienced international tax attorney with over 25 years of expat tax experience. Unlike a CPA or EA, talking to a tax law attorney first allows you to establish client privilege protection. This is especially beneficial if you seek guidance on potential tax issues you may face.
Additionally, Tax Law Expats provides clients with expat tax law, CPA, and EA services under one roof. Tax Law Expats provides clients with professional expat tax advice.
Are you a U.S. expat who plans to move to Dubai?
Schedule a confidential consultation with Jason Kovan, Managing Partner at Tax Law Expats by calling (305) 600-5924 or visiting us online.