VAT refers to Value Added Tax. It is being introduced in the UAE starting 2018. Here’s all you need to know about it.
What is VAT?
Value Added Tax (VAT) is a consumption tax applied on a good as its value is increased each stage of its production or distribution. It is an indirect tax that is related to a taxpayer’s consumption and not their income. VAT is applicable in more than 160 countries.
When will VAT come into effect?
VAT, at the rate of 5%, shall be introduced in the UAE and other GCC countries from 1 January 2018. Businesses can start registering for VAT three months before the launch date (1 October 2017).
What shall be taxed?
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 include automobiles, electronics, jewellery, restaurant services, and entertainment.
What will be exempt from VAT?
The Government of UAE has stated that about items in about 100 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 an 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.
Free Zones Exempt from VAT
The FTA on January 10, 2018 announced that 20 free zones in the UAE would be exempt from VAT. These are being referred to as ‘designated zones’. The areas included are largely fenced free zones with special controls on goods, rather than areas such as Dubai Media City or those dealing in financial services.
In addition, goods may be transferred between designated zones without being subject to tax if the goods are not used or altered during the transfer process, and the transfer is undertaken in accordance with the rules for customs suspension per Gulf Cooperation Council (GCC) Common Customs Law.
There is, however, an exception to this VAT exemption in the designated zones: fee charged for services would be VAT-taxed. So, for instance, a business incorporation service availed in a designated zoned would still be levied with VAT.
Here is the list of the designated zones:
- Jebel Ali Free Zone (JAFZA)
- Dubai Airport Free Zone (DAFZA)
- Dubai Cars and Automotive Zone (DUCAMZ)
- Dubai Textile City
- Free Zone Area in Al Quoz
- Free Zone Area in Al Qusais
- Dubai Aviation City
- Abu Dhabi Airport Free Zone
- Khalifa Industrial Zone (Kizad)
- Free Trade Zone of Khalifa Port
- Sharjah Airport International Free Zone (SAIF Zone)
- Hamriyah Free Zone
- Ajman Free Zone
Umm Al Quwain
- Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
- Umm Al Quwain Free Trade Zone on Sheikh Mohammed bin Zayed Road
Ras Al Khaimah
- RAK Free Trade Zone
- RAK Airport Free Zone
- RAK Maritime City Free Zone
- Fujairah Free Zone
- Fujairah Oil Industry Zone (FOIZ)
With the introduction of VAT in the UAE, there are considerations that businesses would have to take care of with regard to tax consulting. We at Commitbiz have our team of experts to help you with company formation, registration and counselling. For any queries on VATtax consultation for companies in the UAE, feel free to reach out to us.