VAT (Value Added TAX) or ‘tax on consumption’, a 5 percent charge as established by the Federal Tax Authority (FTA) on a list of goods and services, is coming to UAE in the next few days. This new tax is expected to have an impact on prices but, as the rate was deliberately set low, it should only be a limited burden on all consumers.
VAT will be payable by every individual and collected by retailers acting as a tax collector on behalf of the government. Why VAT implementation? “VAT is intended to help improve the economic base of the country;” it aims to strengthen the indirect tax structure of the country and benefit the economy, according to the Ministry of Finance (MoF) website. This tax is also devised to reduce the dependence on oil and other hydrocarbons as a source of revenue.
Ashleigh Stewart, a journalist for The National, said: “VAT is expected to yield Dh12bn in the first year of its implementation and up to Dh20bn during the second year.”
VAT in the UAE is ready to materialize and as all important tax reforms it requires preparation; time is running out and not all businesses are making the necessary efforts in implementing the measures that will ensure compliance. There will be penalties for non-compliance.
Note: Not all businesses will need to register for VAT, but many are the goods and services which will be taxed. Note: “A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000,” the Undersecretary of the UAE Ministry of Finance, Younis Al Khoury, said.
Feel free to Email us to know more about if and how free zones are affected.
With the UAE VAT Collection set to begin from January 1, 2018 across the region it’s time to plan on making a smooth transition to the new tax system. Those businesses that fall under the VAT regime will need to file regular quarterly/monthly tax returns of all earnings for that particular period on time.
For those a bit unclear about the taxable business activities subject to the 5 per cent tax rate of VAT here are some info on what will be affected:
- Mechanized Food and Beverages. However, at least 100 essential food items will be VAT exempt.
- Modernized Telecommunications. Yes, most of the UAE telecom firms will be impacted as well as mobile telephone and internet bills.
- Industrialized goods: Power generating machinery and equipment. All types of energy by utility providers, such as the production or distribution of fuel, electricity, gas and water within the GCC will be subject to VAT at the standard rate.
- Manufactured items. 5 percent on supplies like electronics, cars, watches jewelry, among other things will be subject to VAT. Consumers will also pay the tax when dining out and at facilities that offer entertainment. In other words, all venues with an “explicit fee, commission, rebate, discount or similar will charge a 5 per cent tax.”
Zero-rate tax will include: education (both private and public-school schooling), healthcare (social, medical and dental services), oil, and gas (including petrol at the pump), transportation (air, sea and land), and real-estate (only on the sale and rent of residential buildings, as the rent/sale of commercial buildings (offices, hotels, retail, etc.) is subject to 5% VAT). As well, financial services including loans, credit cards, finance leasing will be exempt. In addition, “services exclusively performed by the government authorities or performed by non-profit organizations, and no-competition with the private sector.” Furthermore, the “exports of goods and services to outside the GCC” will be zero rated where supplies are to be exempt from VAT.