The Ministry of Finance will be implementing value-added tax (VAT) in UAE at the 5% rate in January 2018. The percentage is purposely kept low to limit the financial pain for consumers, residents and visitors in the country and is expected to have only a slight impact on UAE cost of living.
Businesses should be able to start registering for VAT from 1st October 2017. Meanwhile, the Ministry of Finance (MoF) is in the process of defining the exact fees and penalties for non-compliance.
For some time, the International Monetary Fund (IMF) has long urged GCC states to introduce taxation, as a way of ensuring a reliable inflow of government revenues. VAT believed to be the best tax system for strengthening the economy of the UAE and balance the budgets, Al Majid, Chairman of the Dubai Economic Council, said.
According to the Ministry of Finance, VAT is a positive measure in the longer term to diversify revenues and allow the country to continue providing the great services all residents need and, at the same time, reduce dependency on oil revenues.
Who will pay VAT? Anybody (residents, expats and tourists) that buys items in the UAE can expect to pay an additional 5 per cent of the sale price.
Which businesses will be impacted? Not all businesses will need to register for VAT; this really depends on their minimum annual turnover; that is, many small businesses will not need to register for VAT; however, they’ll be expected to record their financial transactions. Value Added Tax (VAT) Certificate is issued for institutions to exempt them from VAT.
- Companies in the UAE whose revenues range between Dh187,000 and Dh375 000 will have the option to either register under the system or not;
- Companies in the UAE that record annual revenues over Dh375 000 will be obliged to register under a Value-Added Tax (VAT) system.
- All goods and services will be taxed with the exceptions of food, education and health services.
What will happen in free zones? The government might keep UAE’s free zones tax free as an added incentive; feasibility and practical implementation will need to be considered prior to finalizing the decision.
As 2017 progresses, the government will provide information for businesses and consumers on this new requirement. Businesses will be expected to comply by bearing all expenses associated with the implementations of the required new processes and the hire of accountants and tax experts if needed. However, the government will provide guidance and general awareness to all parties involved.