American Tax in the UAE and Dubai: A Practical Guide for U.S. Expats

U.S. Tax Filing Obligations for Americans Living in the UAE

Regardless of where you live, U.S. citizens and U.S. tax residents must:

• File an annual U.S. tax return
• Report worldwide income
• Report foreign financial accounts (FBAR) if thresholds apply
• Report foreign assets on Form 8938 if thresholds apply
• Follow U.S. rules for investment reporting
• Report foreign pension participation (when applicable)
• Continue to follow U.S. retirement account rules

The UAE has no personal income tax, but this does not alter U.S. reporting obligations.

Key points:

Tax owed depends on whether exclusions or credits apply. Many individuals living in the UAE use FEIE, FTC, or a combination of both for their U.S. return.

The Foreign Earned Income Exclusion (FEIE) for Individuals in the UAE

FEIE allows qualifying individuals to exclude a portion of foreign earned income from U.S. taxation.

FEIE applies to earned income only, such as:

• salaries
• wages
• certain self-employment income (with considerations)

FEIE does NOT apply to:

• dividends
• interest
• capital gains
• rental income
• pension income
• investment income
• business profits without earned income components

FEIE has two primary qualification methods:

1. Physical Presence Test
2. Bona Fide Residence Test

Many U.S. expats in the UAE qualify under the Physical Presence Test, which requires a certain number of days spent outside the U.S. over a 12-month period.

FEIE reduces U.S. taxable income but does not eliminate:

• self-employment tax (for self-employed individuals)
• reporting obligations
• tax on passive income

Because the UAE imposes no tax on personal income, UAE-based Americans may rely heavily on FEIE.

However, FEIE may affect eligibility for retirement account contributions. FEIE-excluded income is generally not considered eligible compensation for IRA or Roth IRA contributions.

Using the Foreign Tax Credit (FTC) in a No-Tax Jurisdiction

FTC allows individuals to offset U.S. taxes with foreign tax paid.

However:

For example:

• U.S. dividends may be subject to foreign withholding tax in certain cases
• Rental properties in foreign countries may produce foreign tax
• Employment income taxed under a different country’s system may create FTC opportunities

Many expatriates in the UAE use FEIE for employment income and FTC for passive income taxed in other jurisdictions.

Are There Any U.S.–UAE Tax Treaties?

There is no bilateral income tax treaty between the U.S. and the UAE.

This means:

• No treaty-based reduction of U.S. withholding on certain income
• No treaty provisions allocating pension taxation rights
• No tie-breaker residency rules
• No special provisions for capital gains
• No treaty relief for double taxation on employment income

However:

Because the UAE imposes no income tax, the absence of an income tax treaty does not typically create double-taxation issues on UAE-sourced wages.

U.S. Reporting Requirements for Expats Living in the UAE

Individuals living in the UAE may have multiple reporting obligations depending on accounts and assets.

1. Form 1040 - U.S. Tax Return

Required annually regardless of residency.

2. FinCEN Form 114 (FBAR)

Required if foreign financial accounts exceed $10,000 aggregate at any point during the year.

May include:

• UAE bank accounts
• foreign brokerage accounts
• company accounts where the individual has signing authority

3. FATCA Form 8938

Required if foreign assets exceed certain thresholds (varies based on filing status and residency).

4. Form 8621 (PFIC reporting)

Required if the individual holds foreign-domiciled pooled investments that meet PFIC criteria.

This may apply to:

• foreign mutual funds
• UCITS ETFs
• certain insurance-linked investment products

5. Form 3520 / 3520-A (if applicable)

May apply in certain situations involving foreign trusts or specific investment vehicles.

Individuals often focus on UAE accounts, but accounts in other countries (UK, Singapore, Hong Kong, Europe, Australia) may also trigger reporting obligations.

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Investment Considerations for U.S. Expats in the UAE

Because the UAE does not impose investment tax at the personal level, individuals often evaluate how foreign investment structures interact with U.S. rules.

1. U.S.-Domiciled Investments

U.S.-domiciled investments:

• follow U.S. tax rules
• avoid PFIC classification
• integrate with IRAs and Roth IRAs
• are often preferred for U.S. reporting simplicity

2. Foreign-Domiciled Funds May Require PFIC Evaluation

Many UAE-based investment platforms offer global funds that may be foreign-domiciled.

PFIC rules may apply, depending on the structure.

Individuals often review:

• fund domicile
• underlying investment structure
• reporting capabilities
• tax obligations under U.S. rules

3. Multi-Currency Considerations

Even when using U.S.-domiciled investments, individuals may incorporate:

• USD
• AED (pegged to USD)
• EUR
• GBP
• CAD
• AUD

Currency planning may matter for long-term goals, even in a currency-stable environment like the UAE.

4. Access to U.S. Brokers

Some U.S. custodians:

• allow accounts with UAE addresses
• restrict certain trading activities based on local licensing rules
• may request periodic documentation updates
• may limit access to certain securities

Policies vary by custodian and may change over time.

Tax Considerations for U.S. Expats Earning Income in the UAE

Because the UAE does not impose income tax on wages, many individuals rely primarily on FEIE to manage U.S. tax liability.

Important considerations:

Self-employment tax may still apply

Even when FEIE excludes income from U.S. taxation, self-employment tax is separate.

Retirement contributions depend on U.S.-taxable income

Individuals using FEIE may have reduced eligibility to contribute to:

Roth IRAs

Traditional IRAs

Certain employer benefits may be treated differently

Housing allowances, cost-of-living benefits, and travel allowances may be subject to U.S. rules.

U.S. tax still applies to:

• investment income
• dividends
• capital gains
• interest
• rental income
• passive income
• certain pension distributions

Considerations for Individuals With Investments or Income From Other Countries

U.S. expats in the UAE often:

• own property abroad
• hold investments in additional countries
• receive income from previous employers
• maintain retirement accounts across jurisdictions
• have multi-currency income streams

This can trigger:

• multiple reporting obligations,
• eligibility for FTC if foreign tax is paid elsewhere,
• FX considerations for long-term financial planning.

For example:

• UK dividends may be taxed in the UK
• Singapore rental income may trigger local tax
• EU employment may create foreign tax credits
• Australian Superannuation may interact differently with U.S. rules

Understanding these interactions is important.

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No U.S.–UAE Tax Treaty: Key Implications

Without an income tax treaty:

U.S. statutory withholding rules apply

(e.g., certain pension withdrawals)

No treaty mechanism exists for allocating pension taxation rights

U.S. rules govern U.S.-source income.

No treaty guidance for double taxation

This is mostly relevant when individuals receive income taxed in third countries.

Capital gains are taxed under standard U.S. rules

U.S. capital gains tax applies regardless of UAE residency.

IRS residency tie-breakers do not apply

The UAE does not have a treaty article for this purpose.

401(k), IRA, Roth IRA Considerations While Living in the UAE

Individuals may keep their 401(k) after relocating

Servicing limitations depend on provider policies.

Rollovers to IRAs follow standard U.S. rules

Suitability depends on fees and long-term planning.

Roth contributions require U.S.-taxable earned income

FEIE-excluded income does not count.

Roth conversions do not require earned income

Conversions create U.S.-taxable income; local tax treatment varies.

PFIC considerations do not apply inside U.S. retirement accounts

401(k)s, Traditional IRAs, Roth IRAs hold U.S.-domiciled assets.

Illustrative Examples

These examples are educational and do not represent actual clients or outcomes.

Example 1 - U.S. Employee Living in Dubai

Profile:

• Earns salary in AED
• Receives no foreign tax documents
• Holds a U.S.-domiciled portfolio

Considerations:

• FEIE may reduce U.S.-taxable earned income
• Cannot rely on FTC for income earned in UAE
• U.S. investment income remains taxable
• Multi-currency planning depends on future residency

Example 2 - U.S. Citizen With Global Investments

Profile:

• Lives in the UAE
• Owns property in Europe
• Receives dividends from UK investments

Considerations:

• FTC may apply to foreign tax paid in the UK
• FEIE may apply to UAE-sourced wages
• PFIC evaluation may be required for some non-U.S. pooled funds

Example 3 - Self-Employed Consultant in Abu Dhabi

Profile:

• Earns consulting income
• Uses FEIE
• Has no U.S.-taxable earned income

Considerations:

• self-employment tax may still apply
• Roth contributions may not be possible
• Roth conversions remain available

Example 4 - Globally Mobile Family

Profile:

• Lives in UAE today
• May relocate to Europe later

Considerations:

• Understanding future residency helps plan investment structure
• Long-term tax treatment depends on eventual location
• Currency planning may evolve over time

Checklist for U.S. Expats Filing From the UAE

How Skybound Wealth USA Supports U.S. Expats

Skybound Wealth USA provides educational guidance and support with:

• evaluating U.S. retirement account options
• analysing FEIE and FTC considerations in coordination with tax professionals
• PFIC-aware investment structuring
• identifying U.S.-domiciled investment options
• multi-currency and long-term planning
• global asset allocation considerations
• retirement modelling using MoneyMap

Conflict Disclosure:
‍Skybound Wealth USA may receive compensation for assets managed under advisory programs. Individuals should review all available options before engaging any strategy.

Next Steps

If you wish to understand how U.S. tax rules apply to your financial situation while living in the UAE or Dubai, you may schedule a discussion with Skybound Wealth USA to review your circumstances.