US Expat Taxes for Americans Living in Dubai and the UAE – What You Need to Know
There are an estimated 30,000 Americans living in the UAE.
Living in Dubai and the UAE (United Arab Emirates) is an incredible experience for a variety of reasons – the architecture, culture, nightlife, and shopping to name but a few. As an American expatriate living in Dubai or the UAE though, what exactly do you need to know regarding filing US expat (and Dubaian) taxes?
All US citizens and green card holders who earn a minimum of $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is that there is no income tax in Dubai or the UAE. None. As such although you have to pay tax on your worldwide income to the IRS, there is no risk of being taxed twice on the same income.
US taxes – what you need to know
If you earn a minimum of US$10,000 (or $400 for self-employed individuals), you are required to file form 1040. While taxes are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended online even further until October 15th.
If you have foreign assets worth more than US$200,000 (per person), excluding your home if it is owned in your own name, you must also declare them on form 8938.
If you had at least US$10,000 in one or more foreign accounts at any time during the tax year, you also have to file FinCEN form 114, also known as a Foreign Bank Account Report or FBAR for short.
“United Arab Emirates is a nation of expats – in 2010 only about 16.5% of the 8.2 million people living there were Emiratis.” – The Guardian
For many Americans working in Dubai or the UAE it’s worth claiming the Foreign Earned Income Exclusion, which allows you exclude the first around US$100,000 of foreign earned income from US tax if you can demonstrate to the IRS that you are a UAE resident. Be aware though that even if you don’t owe any tax to the IRS, if your income is more than US$10,000 (or $400 for self-employed individuals) you still have to file a return.
The US and UAE governments share taxpayer info, while UAE banks pass on US account holders’ account info to the IRS, so don’t consider not filing or not fully disclosing your income on your return. The penalties for tax evasion for expats are severe to say the least.
If you’re a US citizen, green card holder, or US/UAE dual citizen, and you have been living in Dubai or the UAE but didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that lets you catch up with your filing without facing any penalties. Don’t delay though, as the IRS might find you first.
Dubaian taxes – what you need to know
The United Arab Emirates is a collection of oil-rich family-owned mini-kingdoms. With relatively small populations and spending requirements compared to their wealth, they simply don’t need to levy income taxes. Other taxes include 5% VAT, 10% on hotels and entertainment, 10% on rental revenues from commercial property, and 5% on rental revenues from residential property. Foreign oil companies and banks also pay corporation tax.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in Dubai that you contact a US expat tax specialist.