Pursuant to the announcement of February 2016 by His Excellency Mr Obaid Humaid Al Tayer, the Government has reconfirmed that from 1st January 2018 the United Arab Emirates will implement VAT of 5%. This tax will enable the different countries of the Gulf Cooperation Council (GCC) to diversify their revenue in an effort to anticipate a decline in oil production.
VAT should be introduced by 1st January 2019 throughout the GCC, comprising six countries (Saudi Arabia, Bahrain, the United Arab Emirates, Qatar, Oman and Kuwait).
WHAT IS VAT AND WHY?
VAT is an indirect tax applied to most goods and services. According to the Government of the United Arab Emirates, the establishment of this tax should bring approximately $3 billion additional revenue in the first year. This windfall will make it possible to diversify revenue while continuing to develop the various diversification plans put in place by the country, notably in tourism, education and urbanisation.
According to current information, goods related to health and education and approximately 150 products will be exempt from the value-added tax, raw materials, basic commodities, categories of clothes, books, etc.). Not all companies established in the United Arab Emirates will be involved in the computerisation of this tax. In fact, only companies fulfilling a certain number of criteria will be subject to the various VAT declarations, which will be done online at the government website.
Registration of companies can be done three months before the launch of VAT on 1st January 2018. Companies falling within the scope of application will need to comply in order to be able to submit VAT returns, accounts and audits.
At present, we do not have detailed knowledge of companies registered in the free trade areas. However, VAT is likely to have a minimal impact in these areas. Regarding payment of VAT by non-residents and according to initial information, there will be no VAT refunds and therefore no possibility of DETAXATION for individuals. However, in the case of foreign companies, they will be able to use a specific procedure to request VAT refunds.