What US Expats Living in United Arab Emirates Should Know (Regarding Taxes)

The UAE is a federation of seven emirates in the Persian Gulf. It is a modern country. Oil is an important part of the economy. Interestingly, almost 90% of the population is made up of foreigners.

If you are planning to become a U.S. expat in the United Arab Emirates, or have been one for a while, it’s important to know the tax laws of the UAE and the potential impact on your U.S. tax return. Expat taxes can be complicated. Fortunately, we have outlined the key points below.

Photo by: Leonardo Aguilar

Taxation in UAE

Personal taxation does not currently exist, whether you are a resident or non-resident. The UAE also does not impose social security taxes on expatriates.

How Living in the United Arab Emirates Impacts US Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in UAE. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats Living in United Arab Emirates with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (clearly the case with the UAE).

FATCA and the UAE

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information

As of the publication of this article, roughly 80 countries have either signed intergovernmental agreements with the United States or are in discussions. UAE and the U.S. do not yet have a FATCA agreement in-place. However, you should be aware of the implications given that the IRS intends to expand FATCA’s reach in the upcoming years.

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.

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