What Does VAT in the UAE Mean for Businesses?

by Zaara 23, Sep 2017

In August 2017, the Tax Procedures Law set the UAE tax system into motion, regulating the collection of taxes. Starting 1 January 2018, Value Added Tax (VAT) – at the rate of 5% would be applicable in the UAE. This implies a multi-layered change in the economic milieu in the region. Here’s everything you need to know about VAT implementation in the UAE.

What is VAT?

Value Added Tax (VAT) is a consumption tax levied on a product as it is enhanced at each stage of its production or distribution. It is an indirect tax that is a function of a taxpayer’s consumption and not his/her income. Over 160 countries worldwide apply this tax.

Gulf Cooperation Council (GCC) countries have decided to introduce taxation to aid the government in diversifying revenue base.

When Will VAT Come into Effect?

VAT, at the rate of 5%, shall be introduced in the UAE and other GCC countries starting in 2018. Businesses can register for VAT three months prior to the launch date (1 October 2017).

What Shall Be Taxed?

The VAT would be applicable to non-essential consumer goods. Anything apart from basic food and essential commodities would fall in this taxable bracket. This would encompass automobiles, electronics, jewelry, restaurant services, and entertainment.

What Will Be Exempt from VAT?

The Government of UAE has stated that about 100 item categories like food, education, health, bicycle, fuel, transport, and social services would be exempted from VAT.

Who Shall Be Taxed?

  • Corporations: Businesses providing goods or services falling in the taxable category, with annual revenue of over AED 375,000, would be required to register for VAT. It is optional for companies with annual supplies and imports less than AED 375,000 but over AED 187,500. Here, companies providing health or education services may reclaim the VAT from the government.
  • Consumers: Anyone purchasing a non-essential is liable to pay VAT.
  • Realtors: Any sale or renting of property for commercial purposes would attract VAT.

Would VAT Apply to Income?

No. VAT does not apply to personal or corporate earnings. Income tax in the UAE is still zilch.

Seeing as VAT would come into effect in the UAE from 1 January 2018, businesses operating there would need to carry out their VAT implementation plans. This includes systems for VAT filing or reclaiming, as may be applicable. This would have nominal to a considerable impact on top lines and balance sheets, thus requiring companies to plan out appropriate financial, technical, compliance and training systems in order to be in accordance with the new regime.

We at Commitbiz Business Setup Consultants Dubai have our team of experts to help businesses in Tax Consulting for VAT in Dubai UAE. Should you have any queries or need any assistance regarding VAT, do contact us, and we’ll sail you through it.


Which state entity manages VAT?

The Federal Tax Authority is in charge of managing and collecting federal taxes and issuing associated fines.

What are the UAE's VAT exempt sectors?

The VAT exempt sectors are

  • Financial services
  • Residential buildings
  • Bare land
  • Local passenger transport

What are the sectors that come under VAT in UAE?

The sectors that come under VAT in UAE are,

  • Entertainment
  • Electronics
  • Hotel services
  • Food and beverages
  • Utility bills
  • Private transport services
  • School uniforms
  • Commercial rent
  • Cars
  • Jewellery

When was VAT introduced in UAE?

Value Added Tax (VAT) was introduced on 1 January 2018 in UAE.

What is the advantage of VAT in the UAE?

The advantages of VAT in UAE are that it encourages investment and personal savings, helps makeup revenue, and eases business dealings.