VAT in the UAE

The UAE will implement value added tax (VAT) at the rate of five per cent from January 1, 2018, said Obaid Humaid Al Tayer, UAE Minister of State for Financial Affairs, the Gulf News reported.

The report cited that GCC countries have recently agreed that they will introduce VAT at a rate of five per cent in 2018. The framework agreement on the implementation of VAT across the GCC is expected in June this year.

“Once the framework agreement on implementation of VAT is reached, GCC countries have time from January 1, 2018 to January 1, 2019 to implement VAT,” said Al Tayer.

The minister said each country has the flexibility to introduce VAT within this time frame. “A lot of ground work needs to be done before implementing VAT. The private sector will need time to prepare for complying with tax rules that is the reason we are giving enough time for all,” said Al Tayer.

The UAE will impose five per cent VAT while exempting 100 food items, healthcare and education. In the first year, the country is expected to generate Dh12 billion from tax revenue.

GCC countries have decided to implement taxation as part of governments’ efforts to diversify revenues in the context of sharp decline in oil prices. The IMF has been recommending fiscal consolidation in the GCC through diversification of government revenues and reduction of subsidies.

Compared to VAT, corporate income tax (CIT) is more likely to act as a disincentive to businesses considering investment in the region and more negatively impact GDP growth. A personal income tax presents an obvious challenge to the tax-free branding that has served the region so well in the past.

“Implementation of corporate income tax is not on our immediate agenda. We will study the impact of direct taxation on competitiveness before introducing such taxes,” said Al Tayer.