What are the tax implications for UK individuals moving to Dubai?

A growing number of ambitious entrepreneurs are moving to Dubai with the promise of year-round sunshine, international business opportunities, and a tax-free salary. But did you know you may still have a UK tax liability, even as a Dubai resident?

Upon moving to Dubai, there is no personal tax due on UAE income. However, even if you become a non-UK resident for tax purposes, you must still pay UK tax on any UK-sourced income. If you move back to the UK, you will revert to being a UK-tax resident and liable for tax on your worldwide earnings.

So before you make your escape to the Dubai sun, make sure you understand your tax position back in the good old UK. Fortunately, Capture Accounting has put together this helpful guide to get you started.

We have an office in Dubai and the UK, so we are in an ideal position to help with company formation in Dubai. So don't be put off by the tax complexities of moving to Dubai - we're here to help. 

Contact us today to find out more about our services.

Do I have to pay UK tax if I am earning income in Dubai?

Here's the excellent news: You won't be taxed on your earnings in the UAE. Unfortunately, that doesn't mean you can carry on making money in the UK tax-free. If you earn a profit from UK activities, even from your new home in Dubai, you must still complete a self-assessment tax return and pay tax.

Let's take a look at the UK tax implications in more detail.

UK Income Tax

As a Dubai resident, you are considered a non-UK resident for tax purposes. That means you only have to pay income tax on your UK-sourced income. So, if you run a business based in the UK as well as your new Dubai enterprise, you must complete a self-assessment tax return and pay income tax on your UK earnings (and/or corporation tax if you run a limited company).

Your UAE income is not subject to any UK taxes. Hurrah.

Rental income from a UK property or a pension may also be subject to income tax. This applies whether you are a non-resident landlord or even if you're renting out your place while you're abroad. There might be ways to reduce this burden, so consulting a tax expert like Capture Accounting is recommended.

UK Capital Gains Tax (CGT)

Profits from selling UK assets (like property or shares) are subject to UK CGT (exemptions may apply depending on your circumstances). The rate of CGT depends on your tax status in the UK, with rates typically set at either 18% or 28%.

Inheritance tax implications

While nobody wants to think about these things, it's important to make provisions so that your assets are distributed according to your wishes if the worst should happen.

It's important to understand that even if you become a resident in Dubai, you may still be domiciled in the UK. "Domiciled" means the place that a person treats as their permanent home for legal or tax purposes. If you were born in the UK, you will more than likely remain domiciled for UK tax purposes or become so the moment you move back to the UK.

That means your worldwide assets will be subject to UK IHT if you die. Factors determining your UK domicile include living in the UK for at least 15 of the last 20 years or having a permanent home in the UK during the last 3 years of your life.

However, if you become non-UK domiciled, only UK-based assets like property or bank accounts would be subject to IHT.

What taxes do UK business owners pay in Dubai?

One of the big appeals of Dubai, apart from the sun and glamour, is the tax freedom. There is no personal tax to pay on your profits in the UAE as an individual running a business within a Free Zone.

There is corporate tax now in Dubai where the headline rate is 9%, but generally, if you operate a Free Zone, there are some exemptions you can claim which we can help you with claiming. There is also VAT to consider.

VAT in Dubai Free Zones

In Dubai, you might have to pay Value Added Tax (VAT) even if you're in a Free Zone. For example, if you sell things within the UAE or import goods you'll need to pay it. Also, some goods and services may have VAT no matter where your business is. It's smart to check with a tax advisor to understand when you need to pay VAT.

Also, read our useful article about VAT rules in Dubai.

What is the new corporate tax in Dubai?

Dubai introduced a new corporate tax in June 2023, but it only applies to businesses operating under a commercial license outside of a Free Zone. The flat rate of corporate tax rate of 9% applies to business profits exceeding AED 375,000 (approximately £79,000).

It's important to research your Free Zone thoroughly to ensure there are no exceptions when it comes to paying corporate tax, e.g. it may be applicable to income made outside of your Free Zone.

What is a Free Zone?

A Free Zone in Dubai is a designated area where businesses can operate with certain advantages and incentives. These zones offer foreign business owners 100% ownership of their companies, allowing full control over their operations without the need for a local partner.

Businesses in Free Zones are most often exempt from corporate taxes, along with customs duties on imports and exports. Free Zones also provide streamlined processes for company setup, including simplified administrative procedures and fast-tracked licensing.

That's why Free Zones are such an attractive environment for small business owners, providing them with opportunities to establish and grow their businesses with ease.

What happens to my tax status when I move back to the UK from Dubai?

If you return to the UK from Dubai, your tax status will change depending on your residency status. If you are 'back for good' (e.g. you get a job or buy an apartment), you will revert to being a UK resident for tax purposes. It is important to notify HMRC of your return to the UK and update your tax records accordingly.

If you are visiting - which you can do for 90 days and a maximum of 30 days during which you can work - you will retain non-resident status, and your tax position will remain unchanged.

Your residency status is determined by various factors, including the amount of time you spend in the UK, your ties to the country, and your intentions regarding your stay. If you're not sure what your residency status is, you must complete the Sufficient Ties Test.

Stay compliant in the UK and UAE with Capture Accounting

At Capture Accounting, we're experts in both the UK and Dubai tax regimes and can ensure you stay compliant no matter where life takes you. Whether you're a content creator or influencer soaking up the Dubai sun or a business owner capitalising on the opportunities in the UAE, we're here to support you every step of the way.

With offices in both Dubai and the UK, we're uniquely positioned to provide expert guidance on Dubai company formation, tax planning, and compliance.

Contact Capture Accounting today to discover how we can empower you to fulfil your dreams of living in Dubai.