The friendly relations between UAE and India have existed for centuries. There have been trade links between the two countries and Indian traders have been living in the UAE even before oil was discovered in the country. Since the discovery of oil in 1959, millions of Indians have migrated to Dubai for work. Today, Indians form the largest segment of the UAE population. While most Indians work as employees in industries like petroleum and construction, a large number of people have set up their businesses in Dubai.
Earnings and Taxes in UAE
Apart from job opportunities in the UAE, particularly in Dubai, what attracts Indians and other migrant workers is the potential for earnings and savings, and the liberal taxation system. Most Indians are able to earn higher wages than what they would have earned back home and save money through perks like free accommodation and transportation. They usually transfer money from Dubai to India to support their families back home. Considering the high number of remittances, banks provide special facilities to Indians to remit money online.
UAE does not have federal income tax on wages and salaries. While each emirate within the UAE is free to impose income tax, none has introduced such tax till date. There are news and discussions about the imposition of income tax in the UAE, every year; however, the introduction of such looks very unlikely at least for the next few years. This is a great attraction for migrant workers because they are able to save more money.
Taxes on Remittance in UAE
Just like income tax, there is no tax on remittances in the UAE; however, the idea of taxing the remittance to India has been in discussion for several years. Experts in the UAE believe that taxing remittances will be similar to imposing income tax and that is highly unlikely as of now because the main attraction for workers, business owners and investors is the tax-free regime. Secondly, taxing remittances at the emirate level is not feasible because it will be easy to bypass such tax by going to a different emirate and sending money from there.
Taxes on Remittance in India
Indians in the UAE usually send money from bank to bank. The remittance is initiated through a UAE bank account and the amount is credited to a bank account in India. The Indian government has proposed a 12.36% service tax on the remittance fee charged by the money transfer service operators (MTSO). While this can potentially make the remittances costlier, it is important to understand that no tax will be levied on the remittance amount.