VAT in the UAE to be Introduced Next January |

VAT in the UAE to be Introduced Next January

The Ministry of Finance have announced that VAT will be introduced in the UAE as early as January 2018

Posted on

13 February 2017

Last updated on 14 January 2018
VAT in the UAE to be Introduced Next January

While it's been a topic regularly discussed between residents of the UAE, the reality of VAT being implemented in the country will begin sooner than we thought. 

According to recent reports, VAT will be introduced at the beginning of January 2018, which is just 10 months away, and will affect the UAE as well as five other GCC countries, including Saudi Arabia, Kuwait, Qatar, Bahrain and Oman. 

The introduction of VAT is happening in an effort to remove reliance on oil sales, and increase non-oil revenues. While in practice, the task of installing VAT is a complex one, officials have revealed their plans to steam ahead. 

Under-secretary at the UAE's Ministry of Finance, Younis al-Khouri this week shared that GCC governments were planning for early, simultaneous adoption. 

"By 2018, January 1st, we are aiming to adopt 5 percet VAT across the GCC", he said in a joint inverview with Reuters

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When asked if any sector will be exempt, he stated that the government is aiming for a 5 percent rate across the board, but parts of seven sectors - including education, healthcare, renewable energy, water, space, transport and technology - might get special treatment. 

Nonetheless he added, 'currently, as the Ministry of Finance, we are not aiming towards exemptions, which could create some leakages, some confusion." 

What is VAT?

Value Added Tax (VAT) is an indirect tax, and often referred to as general consumption tax. It is imposed on most supplies of foods and services that are bought and sold. It's one of the most common types of consumption tax found across the globe, with over 150 countries installing VAT. 

Why is the UAE implementing VAT?

The UAE Federal and Emirate governments provide citizens and residents with many different public services, including hospitals, roads, public schools, parks, waste control and police services. These services are paid for by government budgets. By introducing VAT, the country will be provided with a new source of income, which will contribute to the continued provision of public services. Plus, it helps the countries involved to reduce dependence on oil and other hydrocarbons as a source of revenue.

If you add up the numbers, a 5% VAT cost could potentially bring around a whopping AED 12 billion into the country in its first year.  

UAE imposes VAT january 2018

When will VAT come into effect?

January 1st, 2018 is the proposed date that VAT will be introduced across the UAE. The rate will be low, and is likely to be 5%. 

Will the cost of living increase?

Inevitably, yes. The cost of living is likely to increase slightly, but this will vary depending on a person's lifestyle and spending behaviour. 

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And if I'm a business owner, how will it work?

From the start, authorities will seek to register all companies with an annual revenue that exceeds $100,000 tax (about AED 367k). But only businesses that meet this minimum annual turnover is required to register for VAT at the beginning. Many small businesses may not need to register. Nonetheless, these details are yet to be 100% confirmed and thus you should await further announcements over the coming months.

Will tourists pay VAT?

Yes, as tourists are a significant source of revenue for the country, they will pay VAT at the point of sale. 

How does this compare to other countries?

In the UK, the rate of VAT is a staggering 20 per cent and in other European countries like Portugal and Italy, VAT stands at 22-23%.