What You Need To Know About US Expat Tax For Americans In The UAE

Expat Living In UAE

There is a finger of land on the eastern edge of the Arabian Peninsula that creates the Strait of Hormuz by sticking out and north toward Iran. It pinches the water of the Persian Gulf as it flows through the Gulf of Oman into the Arabian Sea. Two neighboring Arab countries share this small area: the United Arab Emirates (UAE) on the west and larger Oman on the east side, and further down the Arabian Peninsula. Saudi Arabia borders the UAE in the South. Read on to discover important tips on the US Expat Tax in the UAE.

The United Arab Emirates’ geographical chokehold on the Persian Gulf and role as one of the top ten sources of world oil and natural gas have brought it both wealth and international recognition. It shares this position with other members of the Gulf Cooperation Council (GCC), a regional economic and political union of Arab states, including Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia, which line the Persian Gulf for the most part.

The UAE is actually a federation of kingdoms ruled by absolute monarchs from Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Quwain. The seven emirates are governed by an elected President, practice Islam, apply Sharia law, and have adopted Arabic as the official language.

Expats need to consider how the UEA judicial system works in terms of both civil and criminal law. Even though the UAE encourages international business and practices religious tolerance of outside religions, non-Muslim expatriates are subject to “personal status laws” that cover marriage, child custody, and other aspects of personal life, including dress and public behavior.

The federation, in fact, has worked to improve both education and healthcare services on a national scale. Health insurance, for example, is mandatory in Abu Dhabi for even expatriates and attracts tourists seeking medical assistance from surrounding GCC states as well as the rest of the world.

Below is our top 10 list of cities in the United Arab Emirates for expats (in no particular order):

• Dubai
• Abu Dhabi
• Sharjah
• Al Ain
• Ajman
• Ras al-Khaimah
• Fujairah
• Umm al-Quwain
• Khor’fakkan
• Dibba Al-Fujairah

This sandy land has a subtropical-arid climate characterized by hot summer months (July and August) with temperatures averaging 45 °C (113 °F) on the coastline and cooler in the mountains. Winter temperatures fall to a relatively cool temperature around 14 °C (57 °F). While coastal annual rainfall averages approximately 120 mm (4-5 inches), mountainous areas experience significantly higher amounts of precipitation. Another weather hazard in this region is dust storms.

Guide To US Expat Tax In UAE

The Tax Samaritan country guide to US expat tax in UAE is intended to provide a general review of expat tax in the United Arab Emirates and how that will impact your U.S. expatriate tax return as a U.S. Expat In UAE.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from the United Arab Emirates and the U.S. For example, certain benefits may be tax free or excluded from taxable income in the United Arab Emirates, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to US expat tax in UAE and this brief article will address a few of those considerations.

UAE Expat Income Taxes

Who Is Liable For Income Taxes In the UAE

Neither foreign nationals nor residents in the United Arab Emirates pay a personal income tax. Corporate taxation does exist in all seven kingdoms, but is applied only to specific business entities like foreign energy-producing companies and the branches of foreign banks. In fact, rather than owing money to a government as income tax, a foreign national who has performed services in the UAE for longer than one year will actually receive an end-of-service benefit based on paid wages.

Tax Year In The UAE And Tax Filing And Payment Rules

Since taxes are levied on business profits, there is no separate taxation on capital gains. Similarly, there are no net worth, estate, or gift taxes.

Tax Withholding For Expat In the UAE

Unlike UAE and GCC nationals, foreign nationals do not pay social security taxes nor contribute to any retirement funds. There are no issues regarding double taxation and Totalization Agreements (see below).

What You Need To Know About US Expat Tax In UAE

When dealing with US expat tax in the UAE, there are a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats, depending on your amount of income, the Foreign Earned Income Exclusion (IRS Form 2555) and other deductions may reduce your U.S. taxes to zero.

Some of these preferential tax treatments or benefits for US expat tax in the UAE include:

When faced with US expat tax in the UAE, there are many tax items to consider, but the above are by far the most common preferential tax benefits. With top-notch, experienced, and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated to.

United Arab Emirates Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to US expat tax in the UAE is regarding the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).

The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).

The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

If you have bank accounts at Abu Dhabi Commercial Bank (ADCB), National Bank of Abu Dhabi, First Gulf Bank, Abu Dhabi Islamic Bank (ADIB), Al Hilal Bank, Dubai Bank, Dubai Islamic Bank, Emirates (NBD), Citibank UAE, and HSBC Bank Middle East (UAE Branch) or at another bank in the United Arab Emirates or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – United Arab Emirates Social Security Totalization Agreement

The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country. Since the United Arab Emirates does not withhold a portion of UAE-source income for retirement funding, it does not have a Totalization Agreement with the United States. There is no double taxation of social security income for US expat tax in the UAE.

U.S.- United Arab Emirates Tax Treaty And Tax Relief For US Expat Tax In the UAE

The United States does not currently have a separate tax treaty with the United Arab Emirates.

FAQs About U.S. Expat Taxes in the UAE

1. Do I still need to file U.S. taxes if I don’t pay income tax in the UAE?

Yes. Even though the UAE doesn’t impose personal income tax, the U.S. taxes its citizens and green card holders on worldwide income. You must file annually if your income meets the IRS filing thresholds.

2. Can I use the Foreign Earned Income Exclusion while living in the UAE?

Yes. If you qualify under the physical presence or bona fide residence test, you can exclude up to the IRS-set limit of foreign earned income each year. This exclusion helps reduce or even eliminate your U.S. tax liability.

3. Do I have to report my UAE bank accounts to the IRS?

Yes, if the total value of your foreign accounts exceeded $10,000 at any point in the year. This requires filing the FBAR (FinCEN Form 114). You may also need to file Form 8938 if your balances meet higher FATCA thresholds.

4. Are there any tax treaties between the U.S. and the UAE?

No. The U.S. and the UAE do not currently have a tax treaty. That means you cannot rely on treaty benefits to reduce your U.S. tax obligations.

5. Do I pay into U.S. Social Security while working in the UAE?

Not usually. The UAE does not have a Totalization Agreement with the U.S., so you won’t pay UAE social security taxes and generally won’t receive U.S. credits unless you work for a U.S. employer abroad. If retirement benefits are important to you, it’s worth planning ahead.

6. What happens if I don’t file my U.S. taxes while living in the UAE?

Failure to file can lead to penalties, interest, and even issues with maintaining your U.S. passport. The IRS also enforces strict reporting rules for foreign accounts, which carry heavy fines if ignored. It’s better to file on time and claim exclusions or credits than risk non-compliance.

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Our goal is to provide the best counsel, advocacy, and personal service for our US expat tax in the UAE. We are not only tax preparation and representation experts, but we also strive to become valued business partners to American expatriates in the UAE. Tax Samaritan is committed to understanding our clients’ unique needs. Every tax situation is unique and requires a personalized approach to provide realistic and effective solutions.

Click the button below to request a Tax Preparation Quote today to get started with the preparation of your return for US expat tax in the UAE or to request a free 30-minute tax consultation.