Find out the answers to those common questions about VAT in the UAE
14 January 2018| Last updated on 13 November 2018
Two weeks have passed since the implementation of VAT in the UAE and surrounding Gulf countries. Many of us still can’t quite get our heads round the numbers, and some of us are beginning to feel the pinch of the new standard rate of 5%.
But while this change is still something many of us are adapting to, VAT in the UAE will help to provide the country we have chosen to call home with a new source of income, which will contribute to the nation and communities living here in the future.
Of course, with any change, lots of questions come with it– and our aim is to answer as many of those VAT questions you might have and how it will affect your life in Dubai, and the UAE.
1. What is tax? And what is VAT?
Tax is the means by which a government raises revenue to pay for public services, like hospitals, schools, defence etc.
Value Added Tax (VAT) is an indirect tax, which is imposed on most supplies of goods and services that are bought and sold.
2. Why is the UAE imposing VAT?
The implementation of VAT in the UAE will contribute to the ‘continued provision of high quality public services into the future’, the Ministry of Finance explains.
The UAE Federal and Emirate governments provide citizens and residents with different public services – like hospitals, schools, parks, police – which are paid for out of government budgets.
Introducing VAT will also help the government move towards its vision of reducing dependence on oil as a source of revenue.
3. How will the government collect the VAT?
Businesses and business owners are responsible for carefully documenting their business income and costs and associated VAT chargers.
Registered businesses and traders will charge VAT to all of their customers at the 5% rate, and will incur VAT on goods and services bought from suppliers.
The difference between these sums is reclaimed, or paid to the government.
4. Are there any products and services exempt from VAT?
You’ll be pleased to hear that yes, there are some things exempt or excepted by the UAE’s law; things like medical fees, examination fees and air travel. More about that here.
5. Will the cost of living increase in the UAE?
Citizens and residents can expect the cost of living to increase only slightly, but this will vary of course, depending on your lifestyle and spending behaviour.
6. Will sending money home cost more with VAT?
For expatriates wishing to send money back to their home country, they can expect to incur a VAT charge of 5% on the bank charges and service fees.
7. Will public and local transport cost more?
If you use Dubai Metro, Dubai Tram or even the RTA’s buses and national taxis on a daily basis, you’ll be pleased to know that VAT does not apply to the local transport services offered in Dubai and across the UAE.
While private taxis like Careem and Uber fall under the transportation label however, their marketplace services are VAT applicable – and thus the two companies have increased their costs to off-set the small percentage of VAT applied, as Khaleej Times explains.
8. Are mobile and Internet service providers charging VAT?
The simple answer is yes. Internet and telecom service providers like Etisalat and du will apply the 5% VAT to their products and services. Meaning, yes, your monthly bill payment will increase.
9. I’m a business owner – how can I register my business for VAT?
Businesses can register for VAT tax through the e-services section on the Federal Tax Authority (FTA) website. Find out more about this process, here.