United Arab Emirates

Tax-deferred employer plans

Under UAE Labour Law, employers must pay an end-of-service gratuity (EOSB). Traditionally, the EOSB was an unfunded employer obligation: a book reserve with no segregated assets. Under this structure, the EOSB is not a foreign trust under Treas. Reg. §301.7701-7. The exemption is available only to an ‘eligible individual’ under §5.02: someone who is compliant (or comes into compliance) with U.S. income-tax filing and has reported the plan’s contributions, earnings, and distributions as income to the extent U.S. law requires; a participant who never reported plan earnings cannot rely on it until they do.

However, the UAE introduced the DEWS (DIFC Employee Workplace Savings) scheme in 2020 for DIFC employers. DEWS holds segregated assets in a trust structure for the benefit of individual members: it is a foreign trust. Form 3520-A and Form 3520 must be filed for the part your own contributions fund, once your own contributions exceed the employer’s, counted as the note at the end of this section explains (Treas. Reg. §1.402(b)-1(b)(6)), or for any part you otherwise own. Similar workplace savings schemes are being adopted in ADGM and other UAE free zones.

Rev. Proc. 2020-17 does not require a treaty, so the absence of a U.S.–UAE income tax treaty does not by itself disqualify DEWS or similar workplace savings schemes. Whether they qualify instead depends on whether they independently satisfy the revenue procedure's conditions (including nondiscrimination, contribution limits, and withdrawal restrictions tied to retirement age, disability, or death), which requires plan-specific analysis. Absent a qualifying exemption, a UAE retirement or savings trust an employer contributes to is reported as the note at the end of this section explains.

Employees can typically choose between different investment risk profiles. The 3520-A should report employer contributions, employee voluntary contributions (if any), investment returns, fees, and opening/closing balances.

For a plan an employer contributes to, a trust holding it is generally a nonexempt employees’ trust described in §402(b). §6048(a)(3)(B)(ii) excepts transfers to §402(b), §404(a)(4), and §404A trusts from Part I, the participant’s own contributions included, and §679 does not make the participant the owner (see the Reporting Guide’s employer-plan section). Payouts the participant reports as compensation income are excepted from Part III. If the participant’s own contributions ever exceed the employer’s, the participant is treated as the owner of the part those contributions fund (Treas. Reg. §1.402(b)-1(b)(6)), reports it on Part II and Form 3520-A each year it is owned, and is taxed on its income each year. In that count, what the participant chose to put in, salary sacrifice included, is the participant’s, and anything the plan’s rules required taken from pay is the employer’s, as the IRS chief counsel read a national retirement fund in 1997. The rest is taxed when it vests and, after that, when paid out (§402(b)(1), (2)).

Actual trusts (DIFC and ADGM)

The Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) have their own trust laws based on English common law principles. DIFC and ADGM trusts are used for estate planning, asset protection, and business purposes.

These are clearly foreign trusts under Treas. Reg. §301.7701-7: the DIFC and ADGM trust laws explicitly create trust relationships with trustees, beneficiaries, and segregated trust property. Rev. Proc. 2020-17 does not apply: it covers tax-favored retirement trusts, not express trusts established for wealth planning.

A U.S. person who transfers property to, is treated as the owner of, or receives a distribution from a DIFC or ADGM trust must file Form 3520; an owner also files Form 3520-A. Distributions from such trusts to U.S. persons are reported on Form 3520, Part III.

Gifts and inheritances

The UAE is a significant source of gifts for U.S. persons, given the large U.S. expat community and the wealth concentrated in the country. If a U.S. person receives more than $100,000 in gifts or bequests in a year from one nonresident alien individual or foreign estate (adding together gifts from donors related to each other), Form 3520 Part IV reporting is required. Gifts from foreign corporations or foreign partnerships exceeding $20,573 (for 2026, indexed for inflation) are also reportable.

The UAE does not impose income tax, gift tax, or inheritance tax (though Abu Dhabi and Dubai have introduced inheritance laws for non-Muslims). The U.S. obligation is purely informational.

Common scenarios include gifts from family members or business associates in the UAE, inheritance of UAE real property, and distributions from family-controlled entities.

Penalties and practical notes

Failure to file Forms 3520/3520-A carries penalties under §6677: the greater of $10,000 or 35% of the gross reportable amount for certain Form 3520 failures (§6677(a)); 5% or $10,000 for Part II and 3520-A (§6677(b)).

The UAE does not have a tax year in the traditional sense since it has no personal income tax. For Form 3520-A purposes, use the calendar year.

No treaty deferral is available. In a workplace scheme an employer contributes to, such as DEWS, the employer’s contributions are taxed when they vest (§402(b)(1)), and growth after that when paid out, under §72 (§402(b)(2)). Earnings are taxed each year on a part the member owns (voluntary contributions above the employer’s) and, for a highly compensated employee, if the scheme fails the U.S. coverage tests (§402(b)(4)(A)).

DEWS and other workplace savings schemes provide annual statements through their online portals showing contributions, investment returns, and balances.

Convert UAE dirhams at the rate prevailing when each amount is received, paid, or accrued; the IRS has no official exchange rate and generally accepts any posted rate used consistently, so its published yearly average rate is a common choice for amounts arising evenly across the year. The AED is pegged to the USD at approximately 3.6725, so exchange rate variation is minimal.