Dubai Taxes for US Citizens: Quick, Practical Guide

If you’re a US passport holder planning to live, work, or invest in Dubai, the first question that pops up is: "Do I pay taxes here?" The short answer is easy – the UAE doesn’t have personal income tax. The longer answer is about how the US taxes you on worldwide income and what steps you need to take to stay on the right side of the IRS.

Understanding the UAE Tax Landscape

Dubai belongs to the United Arab Emirates, which prides itself on a zero‑personal‑income‑tax policy. That means you won’t see a paycheck deduction for income earned in the city. However, there are a few levies you might still encounter:

• Value‑added tax (VAT): 5% on most goods and services. It’s collected at the point of sale, so you’ll notice it on receipts but it’s not something you file yourself.
• Corporate tax: Starting June 2023, businesses with profits over AED 375,000 face a 9% tax. If you run a company in Dubai, this matters, but it doesn’t affect your personal salary.
• Municipal taxes: Small fees on hotel rooms and certain rentals. Again, they’re baked into the price you pay.

For most expats, the biggest tax question isn’t about paying the UAE government – it’s about what the US expects from you.

US Tax Obligations While Living in Dubai

The United States taxes its citizens on worldwide income, no matter where they call home. That means you must still file a federal tax return each year, even if you earn nothing in the US. Here’s what you need to keep straight:

• Report all income: Salary, freelance gigs, rental earnings, dividends – everything goes on your Form 1040.
• Foreign Earned Income Exclusion (FEIE): You can exclude up to $120,000 (2024 amount) of earned income if you meet the Physical Presence Test (330 days abroad) or the Bona Fide Residence Test (full tax year). Use Form 2555 to claim it.
• Foreign Tax Credit (FTC): If you ever pay UAE corporate tax or any other foreign tax, you can claim a credit with Form 1116 to avoid double taxation.
• Bank reporting: Any foreign bank account over $10,000 triggers FinCEN Form 114 (FBAR). The UAE’s banking secrecy is tight, but you still have to report.
• FATCA: Some foreign financial institutions may ask for your US tax ID. Be ready to provide it; refusing can lock you out of accounts.

Many Americans living in Dubai end up paying almost no US tax because the FEIE wipes out their salary, and the FTC covers any small corporate tax they might owe. Still, you must file the paperwork – the IRS penalizes non‑filers heavily, even if you owe nothing.

Practical tip: keep a spreadsheet of all earnings, taxes paid abroad, and dates you’re abroad. When tax season rolls around, you’ll have everything ready for Forms 1040, 2555, and 1116.

Another key point is the state tax. Most US states also tax worldwide income, but many let you claim a residency break if you live abroad for over a year. Check your home state’s rules; some, like California, are stricter than others.

Finally, consider working with a tax professional who knows expat rules. A modest fee can save you from missing a deadline or mis‑claiming the FEIE, which could lead to audits and fines.

Bottom line: Dubai won’t take a slice of your paycheck, but the US will still expect you to report. Use the FEIE, claim any foreign credits, stay on top of FBAR and FATCA, and you’ll enjoy the tax‑friendly life in Dubai without a surprise from the IRS.