Overview of the New Taxation Regime to Be Implemented in the UAE

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The introduction of VAT in the UAE will have a significant impact on UAE residents, businesses but also visitors.

It has been estimated that the introduction of a value-added tax (VAT) in the UAE will generate Dh12 billion of additional revenues. According to the UAE Ministry of Finance, “VAT will provide our country with a new source of income which will contribute to the continued provision of high-quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.”

Has the new UAE Tax Law been published?

At the date of this article, the UAE Tax Law has not been published yet and is currently being finalized. However, the UAE Ministry of Finance has already disclosed some information about the content of this new law. Throughout the year of 2016, the UAE Government has launched a number of campaigns in order to raise awareness and educate UAE residents, businesses and other groups impacted by the new taxation regime. Also, in April 2017, the draft law for a new taxation regime in the UAE was approved by the Federal National Council (FNC).

What will be the rate of the VAT and when will it be effective?

By January 1st, 2018, it is expected that value added tax (VAT) will be applied at a rate of 5% on most goods and services in the UAE and wider GCC region.

To whom will apply the new taxation regime?

VAT, as a general consumption tax, will apply to the majority of transactions in goods and services. A limited number of reliefs may be granted. Not all businesses will need to register for VAT. Only businesses that meet a certain minimum annual turnover requirement will have to register for VAT. That is, many small businesses will not need to register for VAT.

What will be the new mechanism for charging VAT and reporting the amounts charged?

Businesses will be responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government. An online reporting system will most likely be put into place in order to facilitate the reporting obligations of each business. Refund applications will also be available online.

In order to comply with this new system, businesses will probably have to adjust their financial management and book-keeping to make sure that the authorities can identify the details of the business activities and review transactions.

Will specific individuals or entities be exempt from the new regime?

The UAE Ministry of Finance has announced that the UAE Government has no intention of exempting certain individuals from paying the VAT. This means that tourists will also have to pay VAT at the point of sale. However, some special rules on VAT might be issued for organizations such as government entities.

The introduction of VAT in the UAE will have a significant impact on UAE residents, businesses but also visitors. Registration for VAT is expected to be made available to businesses that meet the requirements criteria three months before the launch of the new tax.

For further information about this article, please contact a.motei@motei.com. Motei & Associates is a Dubai-based law firm boasting vast experience in disputes resolution and general corporate, commercial transactional services. Operating in an increasingly challenging market, we are a dynamic, innovative and dedicated firm with an effective blend of experienced lawyers and young talents. By establishing our clients’ needs and concerns, we are able to cut through legal complexities and deliver effective advocacy.

Whilst every effort has been made to ensure that the details contained herein are correct and up to- date, this information does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.