Understanding Tax on US Stocks in the UAE: Rules and Rates for US Expats

However, building your US stock holdings as an expat in the UAE requires careful consideration of the associated risks and regulations, particularly regarding potential US tax liabilities.

In this guide, we’ll provide a comprehensive overview of the capital gains tax on US stocks in the UAE, including the applicable rates and filing obligations. We’ll also outline strategies to mitigate your tax exposure and increase investment returns as an American expat in the Emirates.

Do American Expats in the UAE Pay Capital Gains Tax in the US?

Capital gains refer to earnings derived from the disposal of certain capital assets, such as stocks, bonds, cryptocurrency, and precious metals. They are calculated by subtracting the asset’s purchase price from its selling price.

In many jurisdictions, including the US, you’re typically liable for capital gains tax when disposing of stocks at a price higher than their original purchase cost.

Despite residing abroad, US expats are required to report and pay taxes on their worldwide income, including any capital gains from trading US stocks. The amount of capital gains tax you owe is determined by how long you held the asset before selling it.

To determine the applicable tax rate, the Internal Revenue Service (IRS) will classify your capital gains into two categories:

1. Short-term capital gains
2. Long-term capital gains

Short-Term Capital Gains

Earnings realised from the disposal of assets you held for less than one year are classified as short-term capital gains. For tax purposes, short-term capital gains are treated as ordinary income and are added to your total earned income for the applicable tax year. They are then taxed according to your ordinary income tax rate and filing status.

The table below outlines the short-term capital gains tax rates for 2024 and 2025, along with the corresponding income brackets:

Long-Term Capital Gains

Long-term capital gains refer to profits earned from the sale of assets you held for more than one year. Generally, long-term capital gains are more beneficial to investors as they are subject to lower rates than their short-term counterparts.

The applicable tax rates for long-term capital gains are typically 0%, 15%, or 20%. However, certain “collectible assets,” which include coins, precious metals, and fine art, are subject to a long-term capital gains tax rate of 28%.

The following table presents the specific long-term capital gains tax rates for US expats based on their filing status and income bracket:

In addition to capital gains tax, you may also be subject to the net investment income tax (NIIT) at a rate of 3.8% if your modified adjusted gross income (MAGI) exceeds the following thresholds:

• 125,000 if you’re married and filing separately
• $200,000 if you’re a single filer or a head of household
• $250,000 if you’re married and filing jointly or a qualifying widow(er) with a dependent child

Does the UAE Have Capital Gains Tax?

The UAE does not impose any capital gains tax on individuals, regardless of residency status. This tax exemption applies to all UAE citizens, residents, and non-residents, including US expats.

However, as a US citizen, you remain subject to US tax on worldwide income, including capital gains on US stocks, regardless of where you reside.

This means that any gains you realise from the sale of US or foreign equities must still be reported to the IRS.

Are There Other Tax Implications of Investing in US Stocks as a UAE Resident?

Regardless of your UAE residency status, you may face additional US tax obligations related to the US shares you own, including:

1. Dividend tax
2. Estate tax

Dividend Tax

As a US expat in the UAE, the dividends you receive from investments in American companies are taxable in the US.

US dividends paid to UAE residents are subject to a 30% withholding tax, with no treaty relief. This flat rate applies to most dividends unless you qualify under a reduced withholding schedule due to specific exemptions, such as retirement accounts.

The applicable dividend tax rate will be classified as follows based on the type of dividends you own:

• Non-qualified dividends: These are dividends that don’t meet the IRS minimum holding period or other qualifying criteria for reduced tax rates. They include dividends paid on employee stock options and dividends by foreign companies with stocks that can’t easily be traded on recognised US securities markets. Non-qualified dividends are taxed at your marginal income tax rate.
• Qualified dividends: Any dividends from a stock you held for more than 60 days within the mandatory 121-day holding period or dividends paid by a US-based company or a foreign company tradable on a major US stock exchange. Your qualified dividend tax rates may be 0%, 15%, or 20%, depending on your taxable income and filing status.

The IRS grants tax-free exceptions on dividends under certain circumstances, including the following:

• The stocks are held in a retirement account, such as a 401(k), 403(b), or Roth IRA.
• The dividend derives from a non-taxable event, such as a return of capital.
• Your taxable income falls within the three lowest federal income tax brackets.

Estate Tax

The US estate tax is a federal tax imposed on the transfer of your worldwide assets, including stocks, upon your death.

For US citizens – regardless of where they reside – the estate tax exemption is $13.61 million for the 2024 tax year and $13.99 million for 2025. Any amount above this threshold may be taxed at a federal estate tax rate of up to 40%.

Importantly, US-situated assets held by non-resident aliens (such as a foreign spouse or a UAE-resident non-US citizen) are only exempt up to $60,000, with the excess subject to US estate tax.

This can have significant implications if US stocks are held in the non-citizen spouse’s name.

Is There a Tax Treaty Between the US and the UAE?

The US doesn’t have a double taxation arrangement (DTA) with the UAE. This means you cannot use treaty provisions to reduce or eliminate US tax on income such as dividends, capital gains, or estate transfers.

However, because the UAE does not impose personal income, capital gains, or inheritance taxes on individuals, the absence of a US–UAE tax treaty generally does not result in double taxation.

US expats are still subject to US tax on their worldwide income, but they are not taxed again on the same income in the UAE—making the lack of a treaty neutral in most cases.

Do US Expats in the UAE Need To File US Tax Returns?

Although there are no tax reporting obligations for residents of the UAE, including US expats, US citizens are required to report their worldwide income, including capital gains, to the IRS if their annual gross income exceeds certain thresholds.

You can use Schedule D of the standard Form 1040 or file Form 8949 to report gains and losses from the sale of capital assets.

Failure to file required tax returns and pay due federal taxes may incur substantial fines and interest charges, as well as disqualify you from claiming tax credits and exemptions.

If the gains from selling US stocks are realised through foreign financial accounts or deposited into an account holding assets in excess of $10,000, you must also submit a Foreign Bank Account Report (FBAR) and any applicable Foreign Account Tax Compliance Act (FATCA) disclosures along with your primary form.

US expats who want to reduce their tax burden by claiming a foreign tax credit or foreign earned income exclusion (FEIE) must include these forms in their tax returns.

Filing deadlines for US expats may differ from those for domestic filers. Tracking the applicable due dates is essential for ensuring compliance and maximising available exclusions and deductions.

State Tax Considerations for US Expats

While the guide focuses on federal obligations, it’s important to note that many US states tax worldwide income for their residents.

If you’re considered domiciled or deemed resident in a particular state, even while oversea, you may still be subject to state tax filings and liabilities, which vary significantly across states.

Check with a state tax professional to determine whether your situation requires state-level filings or provides opportunities to change your state of residence before leaving the US.

Currency Reporting & Exchange Rate Impact

All US tax filings, including capital gains and dividend reporting, must be in USD. If you trade or invest in foreign currencies or non-USD assets, you’ll need to convert dates and amounts using IRS-approved exchange rates (e.g. OANDA, the IRS yearly average tables, or monthly averages).

How To Reduce US Tax on US Stocks as an Expat in the UAE?

The tax consequences of investing in US stocks may be substantial, irrespective of your residence status in the UAE. Implementing the following strategies can help you optimise your US tax liability:

1. Prioritise longer investment timelines
2. Offset capital gains with capital losses
3. Utilise tax-advantaged accounts
4. Monitor your cost basis
5. Transfer ownership of your investments to a company or trust
6. Consult an expat tax specialist

Prioritise Longer Investment Timelines

How long you hold a stock before disposing of it may affect its tax treatment. Shares retained for more than 61 days qualify for preferential dividend tax rates, while securities held for over 12 months benefit from reduced long-term capital gains tax rates.

If your financial and liquidity needs allow for it and the stock’s price remains stable, it may be advisable to wait several weeks or months to qualify for reduced tax rates before proceeding with a sale.

Offset Capital Gains With Capital Losses

When calculating capital gains, you may subtract any losses incurred from selling capital assets at a price lower than your purchase cost to reduce your capital gains tax liability.

The IRS allows you to deduct up to $3,000 in losses from your capital gains. If your net capital loss exceeds this limit, you can carry the remaining losses forward and claim them on your tax returns in the coming years.

Take advantage of this provision by selling underperforming stocks at the end of the tax year to reduce your overall tax burden.

Utilise Tax-Advantaged Accounts

If you do not anticipate immediate liquidity requirements, holding securities in a tax-advantaged retirement account, such as an IRA, 401(k), or 403(b), may offer a strategic approach to growing your investments without incurring immediate tax liabilities. Additionally, capital gains tax does not apply to stocks traded within these accounts, allowing you to retain the full profits.

Depending on whether you opt for a Roth 401(k), Roth IRA or a traditional retirement plan, you may withdraw your funds from the account tax-free or at your marginal tax rate, which could be lower by the time you retire.

Monitor Your Cost Basis

The basic cost of a capital asset extends beyond its purchasing price. It includes any other expenses you incurred in the process of acquiring or maintaining the asset, such as consultancy and brokerage fees.

Accounting for these expenses will increase the base price of the asset and lower the taxable gains on it.

Transfer Ownership of Your Investments to a Company or Trust

Placing your US investment assets into a company or trust can be a useful estate planning strategy to reduce exposure to US estate tax and bypass probate proceedings. However, this is a complex area of US tax law and must be approached with caution.

While the transfer of ownership may reduce the size of your taxable estate, it could trigger significant tax consequences, including:

• Gift tax on transfers to irrevocable trusts or non-spouse beneficiaries
• Income tax on trust-generated earnings, especially in grantor or non-grantor trusts
• Generation-skipping transfer (GST) tax if beneficiaries span multiple generations

Additionally, placing assets in a foreign trust or entity could result in increased reporting requirements under FATCA, FBAR, and IRS Form 3520/3520-A.

Given these risks and complexities, any transfer of US stock ownership to a company or trust should be undertaken only with guidance from a qualified cross-border estate planning adviser.

Consult an Expat Tax Specialist

Navigating cross-border tax compliance can be complex, particularly if you lack specialised knowledge of the nuances involved. You may be unaware of specific rules and tax obligations applicable to you, potentially leading to significant financial or legal complications.

Consulting with experienced expat tax advisors, such as those at Titan Wealth International, can help you comply with tax regulations across relevant jurisdictions, accelerate the growth of your US and UAE investments, and optimise your tax liabilities.