Pay 5% more in the UAE for VAT

The government of the UAE have introduced value-added tax (VAT) on goods and services at 5% of their prices as of 1 January 2018. The Executive Regulations for Federal Decree-Law No. (8) of 2017 on Value Added Tax was signed in late November 2017.

In a media briefing on 12 December 2017 HE Younis Haji Al Khoori, Undersecretary of the UAE Ministry of Finance said: “Value-added tax plays a key role in achieving the leadership's vision of reducing oil dependency and building a sustainable knowledge economy. This will contribute to advancing development by providing additional sources of income for the expansion of infrastructure projects.

“VAT was introduced in the UAE after in-depth studies indicating that there would be no impact on the business sector and the investment environment in the country, nor would it affect the country’s position and competitiveness should it be implemented. In fact the UAE will implement the lowest VAT tax rate on a global level, with the aim of reaching the highest levels of happiness within the UAE community.”

Tourists will also pay VAT, but foreign businesses may recover the VAT they incur when visiting the UAE.

Businesses with turnover below AED375,000 are not required to register for VAT, but voluntary registration is accepted if the turnover exceeds AED187,500 and is below AED375,000.

In early December, the UAE Federal Tax Authority stated that selected sectors that will be assigned zero-rated tax. Examples provided by the Tax Authority include:

Financial services	VAT rate
Margin based products (products not having an explicit fee, commission, rebate, discount or similar)	Exempt
Products with an explicit fee, commission, rebate, discount or similar	5%
Interest on forms of lending (including loans, credit cards, finance leasing)	Exempt
Issue, allotment or transfer of an equity or debt security	Exempt

Telecommunications and electronic services	VAT rate
Wired and wireless telecommunications and electronic services	5%

Government activities	VAT rate
Sovereign activities which are not in competition with the private sector undertaken by designated government bodies	Considered outside VAT system
Activities that are not sovereign or are in competition with the private sector	VAT rate dependent on good/service ignoring provider

Free zones	VAT rate
Supplies of goods between businesses in designated zones	Considered outside VAT system
Supplies of services between businesses in designated zones	VAT rate dependent on service ignoring location
Supplies of goods and services in non-designated zones	VAT rate dependent on good/service ignoring location
Supplies of goods and services from mainland to designated zones or designated zones to mainland	VAT rate dependent on good/service ignoring location

In late December 2017 the Federal Tax Authority also clarified that diplomatic missions and international organisations that do not conduct business will be registered in a system that does not require a tax registration number (TRN). International organisations that do conduct business, import and export on regular basis should however register for VAT.

WAM, the Emirates news agency, also reported on 1 January the Ministry of Finance's assurance that the Federal Financial System is ready to manage all financial transactions related to VAT. The Federal Financial System is an integrated financial system that enables the ministry to finance federal entities, manage and govern financial procedures, and monitor the spending of federal entities.

Explore:

Ministry of Finance FAQ on VAT

Useful links for VAT

Deloitte has prepared a free VAT in the GCC Guide mobile app, which can be downloaded on the Apple and Google app stores

Read PwC's discussion on VAT and the movement of goods between UAE and KSA

Some businesses have already made statements online about VAT, including telco Etisalat and e-marketplace Souq.com.