Dubai is a culturally diverse place with many nationalities and expats from all over the world who call it home. Besides the attractive salaries, increased disposable incomes, business opportunities as well as abundant lifestyle and entertainment options, there are many other reasons why Americans are attracted to Dubai for work. Sure, Dubai’s income taxes are famously excellent, as well. But if you are a US Citizen, you still have to consider your American Tax obligations.
Many will tell you how exciting it can be to live in the United Arab Emirates. But, one of the downsides for American citizens is that the US taxes its expats. Sometimes they must pay both governments. Don’t worry; it’s not as scary as it might sound. We’re here to help guide you through the process!
Expats Living in Dubai
Expats have flocked to Dubai over the last decade, attracted by its tax-free salaries, business opportunities, and high standard of living. Outside work hours, expats can enjoy top-class hotels, restaurants, malls, and beaches, as well as tennis courts and golf courses. Many tourists and locals head out to the desert for a wide range of activities, such as dune bashing or sand surfing but don’t forget that they even have ski slopes!
According to BQ Doha, in 2020, just 12% of the population of the UAE were locals. The rest of the population comprises of expats from around the world. The majority of internationals (about 60%) come from India and Pakistan.
Americans in the UAE
When it comes to US expats in the United Arab Emirates, there is a total of around 332,000 US citizens residing in the country. The Majority of these Americans live in Dubai. However, sizable populations also live in Abu Dhabi.
That’s a stark increase from statistics produced in 1999. Back then, there were only 7,500 United States citizens in Abu Dhabi and as many as 9,000 in Dubai. Meaning that there has been a significant surge of Americans heading to the UAE as worldwide commerce and communication become more accessible than ever. There is a lot to love about living there.
Who Needs to pay Income Taxes to the UAE while Living in Dubai?
Americans living in Dubai typically pay nothing on their earnings, whether they’re US citizens or green card holders, as long as they are not considered tax residents of the UAE. Allowing expats to put their entire income toward retirement and other financial goals.
However, if you become a resident of the UAE — and this doesn’t necessarily mean you live there full time — you might have to pay. To be considered an expat, you must spend less than 183 days in the UAE during a calendar year. This requirement is often referred to as the “183 days rule.” In other words, you spend less than six months a year as a full-time resident.
Who Needs to pay US Taxes while Living in Dubai?
Anyone with US citizenship and meeting the minimum income threshold must file their US return every year. However, this doesn’t necessarily mean you will pay anything. Even if you’ve never lived in the US, you are still obligated to file a tax return. Failing to file your US return could lead to penalties or fines.
Luckily, if you didn’t know you needed to file, the IRS has created a program that lets you get caught up, penalty-free. They call it the Streamlined Procedure. It’s perfect for Expats and Accidental Americans who may not have known about their tax filing obligations.
Reducing Your US Tax Payments in Dubai
There are two main ways US Citizens abroad avoid taxation on their foreign earned income.
- The first, The Foreign Tax Credit, reduces your US tax burden by allocating credits for taxes paid abroad (assuming the US has a tax treaty with that nation). For Americans in the UAE, the Foreign Tax Credit may not be beneficial, because chances are, you haven’t paid much or anything in foreign income taxes!
- The second way to avoid US taxation is to claim the Foreign Earned Income Exclusion, known as the FEIE. Using this, you can exclude all or a portion of your foreign earned income from being subject to income taxes.
To claim the FEIE, you’ll need to pass either the Physical Presence Test or be a Bona Fide Resident. To pass the Physical Presence Test, you’ll need to be physically present in a foreign country or countries for at least 330 days per year. You can spend these 330 days in any location outside the US or Puerto Rico.
Dubai is one of the few places worldwide that does not require Americans to hold a work visa. Meaning any US Citizen can move there and get a job.
Even though you may not pay tax on your income there, you also have obligations as a US citizen. The good news is that you can exclude a significant portion of your income in any foreign country, including the United Arab Emirates.
In addition, using the FEIE allows you to exclude from your US income tax any housing amounts that are allocable to this excluded income. As a result, all or part of your income would be excluded under the FEIE, and you would pay nothing on those earnings.
Can you Avoid Paying Both US AND UAE Income Taxes?
Given what we know about physical presence and residency, what would it take to pay nothing to the US or the United Arab Emirates?
In theory, one could:
- Be present less than 183 days in the UAE
- Be physically outside the US for 330 days or more in an applicable 12-month period
- Make no more in income than the FEIE covers
- Bam! Travel the world income-tax-free and live the Digital Nomad Dream.
Ok, chances are good you are going to have to have some permanent residence somewhere and pay income taxes there. But we can dream, can’t we?
Expat Tax Tip: Even if you don’t owe income taxes, you’ll still need to file a US Tax Return each year if you meet the minimum income threshold.
Do I Need to File a Tax return if I Don’t Owe US Taxes?
Anyone who meets the minimum income threshold will need to file a tax return, even if they don’t owe US taxes. The thresholds typically go up slightly each year. For 2023, when filing your 2022 Tax Return, they are as follows:
|Filing Status||Minimum Income Threshold|
|Married filing Separately:||$5|
|Married filing Jointly:||$25,900|
|Head of Household:||$19,400|
If your total income for the 2022 tax year was at or above the appropriate threshold, you’d need to file a US tax return. Now that you DO know about your tax obligations, you better get started! We’ve got an affordable program just for you!
American Expats in Dubai
Estimates of the number of Americans living in Dubai can range a great deal, but one thing is sure: there are a lot of them. Numbers provided by the US Embassy suggest that UAE is currently home to more than 1,200 US companies and upwards of 30,000 Americans.
Dubai is a global hub, with a myriad of cultures and people coming in and out of the emirate daily. From toddlers and tourists to the elderly and expatriates, the population is constantly changing.
Considering a Move to Dubai? Consider Your Taxes
Dubai is a city of superlatives. It’s the most populous city in the United Arab Emirates, home to more than 80% of the country’s residents. It has the world’s tallest building, largest shopping mall, and busiest airport.
If you’re an American considering a job offer in Dubai, you have a lot to look forward to and also a lot to consider. Your new hometown will be full of new experiences, but you’ll also need to consider any expat taxes in Dubai and how to mitigate them. With MyExpatTaxes, we’ll help you all along the way, making sure you can spend your time enjoying your life abroad and not worrying about taxes.