Learn about the VAT implementation in UAE and how it may affect you
VAT will be implemented on most goods and services in the UAE as of 01 January 2018.
VAT (Value Added Tax) is an indirect tax imposed on a product at each stage of production, before the final sale. VAT is not usually an additional or add-on to the sale price. The tax is calculated as a percentage of the retail sale price of a product.
Why has the UAE Government decided to introduce VAT?
The UAE Federal Government looks after the provision of many public facilities such as hospitals, roads, public schools, and police services, which will benefit from the additional income VAT will generate. The contributions from collecting VAT will provide resources to fund quality public services in the future. It will also help the government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
In October 2016, the IMF announced that the Gulf States would have a combined fiscal deficit that could exceed the US $700 Billion between 2015 and 2019 if no action was taken. This landmark decision by the Ministry of Finance to introduce VAT in UAE could alone generate AED 12 billion in the first year of implementation and up to AED 20 Billion by the second year.
What will be taxed under VAT?
- The non-essential consumer will be taxed which includes anything other than basic food and essential commodities.
- The UAE Government has already announced 100 food items which will be VAT exempted.
How will VAT affect the consumer market?
Local economists have said that the 5% VAT could lead to certain goods being withdrawn or altered from market shelves, and this could pave the way for alternates.
The following points describe the effect of VAT on the consumer market:
- Businesses with taxable imports and supplies of taxable goods worth AED 375,000 or more will be required to register for VAT, online. According to the Ministry of Finance, registration for VAT for businesses can commence from 01 October 2017. However, businesses taxable imports and supplies threshold between AED 375,000 and AED 187,500 have the option to register for it.
- Consumers of non-essential consumer items may have to face a slight increase in their expense budget as VAT of up to 5% may hit on the price of goods and services.
- Property deals and first sale of new homes will not be taxed, which means that developers can claim back any VAT they have to pay from the Government. Residential tenants leases will also not be taxed, but commercial tenants can expect to pay VAT on their leases for shops, offices or any other commercial property. All commercial property sales will also be subject to VAT.
- For importers and exporters, goods coming to the UAE for re-exporting purposes will be taxed a customs duty, but will not be eligible for VAT. However, if the goods arrive into UAE without a final destination, they will be subjected to a VAT duty, which is reclaimable.
What can businesses do to prepare for VAT and where do I get more information?
Currently, businesses are restructuring their staff and their financial structure as a measure to prepare for VAT on their goods and services. Although registration for VAT commences from 01 October 2017, businesses can ensure that their operations are tax-compliant by reading more about the Tax Procedure Law on the Ministry of Finance official website.
More Group specialises in VAT tax accounting and our specialised tax accountants are well versed with taxing practices all over the world. Our distinguished services and precise services are the key in helping our clients in achieving tax compliant and efficient financial structures. For more information on VAT implementation in the UAE and to speak to one of our experienced tax accountants, do not hesitate to contact us.
Note: The information should not be construed as legal or other advice as it designed as an information source only © More Group