The United Arab Emirates (UAE) has always been a top destination for expats looking to earn great salaries and escape paying any local tax. However, the country’s reputation as a tax-free haven looks set to change with the recently announced plans of the six-nation Gulf Cooperation Council to introduce VAT at a 5 percent rate in January 2018.
What expats in the UAE need to know about the recent tax changes
In the third quarter of 2017, the UAE expects to issue laws on value-added tax and excise tax and regulations covering the implementation of these laws in the fourth quarter. In an effort to boost their oil revenue, which has been damaged by low energy prices, the government also plans to introduce excise tax at rates of 100 percent for tobacco and energy drinks and 50 percent for other sugary drinks.
Businesses to be affected by VAT
Businesses with taxable supplies of more than Dhs375, 000 will be required to register for VAT in the second half of 2017. Those businesses with taxable supplies below Dhs375, 000 but over Dhs187, 000 will have the option to register – but it is expected that after the official implementation on January 1 2018, this will become mandatory.
The 5 percent VAT rate will apply to all supplies, goods and services unless specifically exempted or zero-rated.
The UAE leads the way
The UAE leads the way in the implementation of VAT with other GCC countries intimating they may implement it more slowly. Officials in Oman have not announced a firm date for VAT introduction and it’s only expected to occur in Bahrain in mid-2018. The UAE expects to register 300 000 to 350 000 companies for VAT in mid-September 2018 and the tax is likely to push overall consumer prices up by approximately 1.4 percent.
The UAE will remain relatively tax-free
Despite the introduction of VAT, the UAE will remain relatively tax-free with no income tax being levied on salaries in the country. This will be welcomed by the many expats working in the region. The government is also likely to use its ability to zero-rate many supplies that are most likely to impact the common man and have already announced that 100 food items, health, education, bicycles and social services will be exempt from VAT. Their aim is to focus the VAT on the higher-end of consumer spending and leave those things at the lower end of the spectrum protected and assisted.
What will be subject to VAT?
VAT will be levied on electronics, smart phones, cars, jewellery, watches, dining out and entertainment. If your business is engaged in the supply of goods or services that are subject to VAT (including at the zero rate) you will be entitled to reclaim the VAT you incur on costs.