Simple Tax Guide for Americans Living in UAE

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The United Arab Emirates is an ideal destination for immigrants due to the availability of career opportunities, lack of income tax, exemplary living standards, and various other traits. The population comprises 1.17 Million Emiratis and 9.0 Million Expatriates.

Their embassy suggests that more than 1,200 United States companies and 30,000 Americans are part of the UAE. The Passive Foreign Investment Company (PFIC) introduced multiple reforms to address the tax ambiguities which were being used by United States taxpayers to safeguard off-shore investments.

Moreover, Emirati with a green card enables UAE investors to work as well as reside in the United States with their dependents. Even though UAE has signed treaties with numerous countries, the U.S. is not one of them. Expatriate Americans are liable to pay the United States expat taxes despite of where they live.

It is now evident that Americans are subject to taxes based on citizenship, not the place of residency. Let’s look at the tax guide for Americans living in UAE.



United States Expat Taxes – UAE

UAE promotes itself as a tax haven, but as an expatriate American, you have a tax obligation to the United States. Permanent residents and citizens of the United States are supposed to file expatriate tax returns with the U.S. federal government annually despite  Only United States persons are affected by the Passive Foreign Investment Company (PFIC) rules, which involve U.S. citizens, U.S. residents, U.S. green card holders, and Canadians who have spent a remarkable time in the United States.

What is a PFIC?

PFICs are basically joint investments that are registered out of the United States and incorporate mutual funds, non-United States pension plans, hedge funds, and insurance products. The foreign establishment should meet one of the following criteria:

  • At least 75% of its income is generated passively, including capital gains, dividends, interests, etc., for which ongoing effort is not required.
  • At least 50% of its assets and funds are retained for the mere purpose of producing passive income.

The aforementioned conditions are generally true in the case of all overseas investments, and therefore they are all PFICs. United States will tax the investment account of a U.S. citizen or Emirati with a green card who is considered a lawful U.S. resident.

Along with the regular income tax return, you may also be required to file an informational return on the assets retained in overseas bank accounts with overseas banks and Other Account Reporting (FBAR) Form 114, alongside Form 8938 Statement of Specified Foreign Financial Assets.

Paperwork for United States Expat Taxes

It is crucial to maintain crystal-clear records and be equipped with most of the necessary documentation. The mandatory items to be reported on Form 1040 and other core forms and types of records to be kept safe are:

  • Income: Salaries and wages, in case of self-employment; profits and losses, real estate earnings, stocks and securities, dividends and interests, as well as any other sources of income, should be defined.
  • Deductions: Mortgage interest and documentation of deductions to reduce tax bills should be inducted.
  • Other records: U.S. ex-pats who own foreign bank accounts, earn United States-based income or have spent sufficient time in a foreign land to qualify for distinct tax treatment.

Chief Tax-Related Dates in the United States

If taxes are owed, the following dates need to be kept in mind by Americans.

  • April 15: Expatriates get extensions till June 15; however, interest will start implying from the date mentioned.
  • June 15: U.S. expatriate taxes need to be paid unless an extension is filed.
  • June 30: Deadline for the FBAR form.
  • October 15: After completion of the extension tenure, expat taxes are due.

Reducing U.S. Tax Payments

Ways via which double taxation can be avoided are:

  • The Foreign Tax Credit: Reduces the United States tax burden by designating credits for taxes paid abroad. For Americans in the UAE, there is a high probability that foreign tax credits may not be very rewarding because the amount paid as foreign taxes is negligible or null.
  • Foreign Earned Income Exclusion: This tactic is used to exclude a certain amount from the income earned via foreign sources. For the tax year 2023, it is $120,000.

Value Added Tax in UAE

The general rate is 5% and is applicable to a wide variety of commodities, while some goods and services are exempted based on certain conditions. A corporation is liable to register under VAT if its taxable supplies and imports surpass AED 375,000 per year.

Social Security Tax in UAE

Expatriate Americans are not obliged to contribute to UAE social security. They pay for the social security system of the United States when expat taxes are paid.

It is important to attain all the necessary information related to tax filing as an American living in UAE. Requirements of the Passive Foreign Investment Company (PFIC) also need to be taken into consideration to ensure the undertaking of the appropriate taxing procedure.

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