VAT (Value Added Tax) is expected to be introduced in UAE at a rate of 5% on 1 January 2018. This percentage is purposely kept low to limit impact on UAE cost of living.
The UAE Federal and Emirate governments provide citizens and residents with many different public services, paid from the government budgets. VAT will provide 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.
Other GCC countries may do so at the same time or by 1 January 2019 at the latest. The UAE is part of a group of countries which are closely connected through “The Economic Agreement Between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as we recognize that such a collaborative approach is best for the region.
Not all businesses will need to register for VAT; this really depends on their minimum annual turnover; that is, many small businesses will not need to register for VAT; however, they’ll be expected to record their financial transactions. Companies whose revenues range between Dh187,000 and Dh375 000 will have the option to either register under the system or not; companies in the UAE that record annual revenues over Dh375 000 will be obliged to register under a Value-Added Tax (VAT) system. All goods and services will be taxed with the exceptions of food, education and health services. The UAE Ministry of Finance is still taking decision about Free Zone, but the free zones may remain exempt to encourage on foreign investments.