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UAE implements Value Added Tax, more financial
reforms to follow

In October 2015, the International Monetary Fund (IMF) published a report in which it claimed that Arabian Gulf states combined would accumulate a fiscal deficit of USD 700 billion between 2015 and 2019, unless financial reforms were implemented.

This created a flurry of introspection among the 6 members of GCC or Gulf Co-operation Council. In turn, this paved the way for Value Added Tax, or VAT which will be implemented in the GCC states all through 2017 and 2018. These countries have signed the GCC-UVAT or GCC-Unified agreement on Value Added Tax.

Effective 1st January 2018, the United Arab Emirates (UAE) will implement a 5% VAT on various goods, similar to the Goods & Services Tax (GST) prevalent in other parts of the world. VAT and excise taxes will help the UAE build up cash reserves, diversify government revenue necessitated by falling crude-oil prices, and ensure more efficiency in the economy. According to Sultan Al Mansouri, the Minister of Economy, VAT could generate Dh 12 billion in 2018 and Dh 20 billion in 2019.

What this means to residents and those doing business with the UAE

Income tax will not yet be applied, so UAE will not yet lose its tag of tax-free haven yet. But for residents and visitors to the UAE, this will increase expenditure in the UAE. Residents who are already feeling the brunt of increased school fees and housing rent will end up paying more on their monthly shopping. But Khalid Al Bustani, the director general of the country’s Federal Tax Authority has reassured anxious citizens that the VAT and excise tax could increase overall consumer prices by an average one-off hike of 1.4 per cent only.

What and who will be taxed

  • Sugary drinks, colas, soft drinks
  • Tobacco and related products
  • Alcoholic beverages
  • First purchase of commercial property
  • Property developers selling commercial property
  • Tenant’s rent/lease for commercial property
  • Goods coming into UAE and re-exported to another, unspecified destination

What and who will not….

  • Groceries or basic food items
  • Medical / Hospital bills
  • School and College fees
  • First purchase of homes
  • Developers selling homes can claim VAT refund
  • Tenant’s rent/lease for a home
  • Goods coming into UAE and re-exported to a specified destination, with paperwork

Registration

  • Businesses that provide taxable goods or services with annual revenue of more than Dh 375,000 must mandatorily register for VAT, between 1st Oct and 31st Dec 2017
  • Businesses that provide taxable goods or services with annual revenue of less than Dh 375,000 but more than Dh 187,500 can choose to register for VAT in the above duration
  • Companies that provide health and education services with revenues as above can register, and reclaim VAT Refund from the Government

Accounting/Legal Procedures

  • VAT returns must be filed every 3 months, can be filed online
  • Businesses must keep accounts or records of all commercial transactions
  • Businesses must be ready for a Tax audit by the authorities, anytime
  • Business-owners evading tax must serve a prison sentence and pay a penalty not more than 5 times the amount evaded

For more information

  • Visit Ministry of Finance (MoF)’s website, VAT section
  • Attend workshops conducted by the MoF as part of awareness campaign
  • Attend VAT Training Courses

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