Value Added Tax is coming soon to the UAE. January 2018 will see the beginning of a new era in the Emirates as the country decides to join the over 150 countries worldwide that have already implemented this tax. UAE’s Ministry of Finance (MoF) has confirmed that a Value-Added Tax (VAT) of 5% will be implemented.
So, what is VAT? It is an indirect tax (an additional payment) on most goods and services that is charged throughout the supply chain. In the end, it is paid by consumers and collected and accounted by businesses on behalf of the government. VAT is a general consumption tax normally paid on non-essentials, such as high-end goods, electronic devices, home appliances, cars, jewelry, and other items but it is also paid on non-essential services.
How VAT will impact the UAE? Well, according to the Emirates Chartered Accountants Group, “Imposition of Value Added Tax is one such diversification move through which UAE is expecting a Dhs 12 Billion from the tax revenue in the first year and in the long run it is estimated to generate a yield of 2.7 percent of non-hydrocarbon GDP.”
However, “other alternate revenue measures including corporate and income taxes are not under consideration for the time being,” according to Minister of State for Financial Affairs Obaid Humaid Al Tayer. Addressing the media, he said “100 food items, health, education, bicycles and social services would be exempt from VAT.” This is good news for those spending heavily on those items, Al Tayer notes.
When the VAT implementation gets underway, it’s important to know that not all businesses will be obliged to register for VAT; in general, smaller operations will be exempted by the requirement. In addition, UAE’s free zones might be exempted too to ensure they remain as an attractive business environment for investors.
Businesses should register for VAT online using eServices, the Ministry said. A GCC-wide implementation of a common VAT system is coming! Meanwhile, UAE implements the tax as part of a first wave of other GCC members developing their own VAT regime. IMF notes that the GCC states have agreed on introducing taxation among several options to help strengthen their revenue base and minimize their dependence on the fluctuating global oil prices, while providing better quality infrastructures and public services to the UAE residents, tells Vicky Kapur, Journalist at Emirates 24/7.
No other taxes will be implemented soon and the UAE is not currently considering personal income taxes.