VAT in the UAE

What is VAT?

Value Added Tax (VAT) is an indirect tax levied on a good as its value increases at each phase of its lifecycle. It is related to a taxpayer’s consumption, and not his/her income. VAT is effective in over 150 nations.

When will VAT be levied?

VAT, @ 5%, shall come into effect in the UAE and other GCC countries from 1st January, 2018. Businesses may commence registering for VAT from 1st October, 2017, 3 months prior to the launch date.

Why is VAT being introduced?

The implementation of VAT will provide an alternate source of income to the UAE government, which would in turn contribute in providing high quality public services in the future.

What shall be taxed?

VAT would apply to non-essential consumer products. Anything besides basic food and essential commodities would be taxed in the category of VAT. This encompasses electronics, automobiles, luxury goods, food services, and entertainment.

What will be exempt from VAT?

The Government of UAE has declared that items in about 100 categories like food, education, health, bicycle, fuel, transport and social services would be exempt from value added tax.

Who all would be taxed?

  • Consumers: Any person purchasing a non-essential is required to pay VAT.
  • Corporations: Businesses dealing in goods or services falling in the taxable bracket, i.e. with an annual revenue of over AED 375,000, are required to register for VAT. Companies with annual supplies and imports less than AED 375,000 but over AED 187,500 may voluntarily register for VAT. By law, companies in the health or the education sectors may reclaim the VAT from the government.
  • Realtors: Any sale or renting of property for commercial purposes would be liable for VAT in the UAE.

Will VAT be applicable on tourists as well?

Yes, VAT would apply to tourists, implying that they would have to pay VAT while purchasing anything.

With VAT coming to the UAE, there are factors that businesses would have to consider with regard to tax consulting. We at Business Setup Worldwide have our team of experts to help you with company formation, registration and counselling. For any queries on VAT or tax consultation for companies in the UAE, feel free to contact us.