Thursday 31 March 2016

VAT will be implemented in UAE in 2018


The United ArabEmirates (UAE) Ministry of Finance (MoF) has recently confirmed that the forthcoming Value-Added Tax (VAT) will be implemented across the country and GCC in 2018. All GCC members have agreed to merge their tax policies prior to implementing the VAT.
It is expected that the UAE will gain Dh10 billion to Dh12 billion in VAT revenues during the first year the tax is introduced. It was confirmed that the anticipated tax revenue does not include certain sectors that will not be subjected to tax, such as education and healthcare as well as certain food products.

Specially designed committees have been assigned to evaluate the social and economic impact the introduction of VAT will bring as well as recommend at which rate the VAT percentage must be set. Upon the suggestions of the assigned committees, the VAT rate should be set between 3%-5%. Education, healthcare as well as 94 food products will not be subject to VAT.

It has also been confirmed that all GCC member states are in total agreement on which sectors will be subject to VAT. Therefore, individual GCC members will not introduce domestic tax legislations before the introduction of the unified VAT.

The UAE authorities have already approved the draft tax legislation and are currently in the preparation phase. The Technical Committee for Legislation at the Ministry of Justice has already received the draft legislation regarding VAT.

Moreover, the VAT can be implemented once two of the member states of the GCC have completed their tax legislation and present the legislation to the GCC Secretariat. Nonetheless, it is expected that the UAE will need up to two years to adopt the legislation. Therefore, it is anticipated the VAT legislation will be introduced in 2018.

It is also interesting to note that Saudi Arabia is considering introducing a VAT but is opposed in imposing Income Tax.

Remittance Tax

The UAE MoF confirmed that each GCC member state will define the suitable tax policies involving Remittance Tax since the matter is considered a state affair.
The UAE is still thinking about introducing a Corporate Tax. The majority of countries inflict Corporate Taxes with the exception of a few like the Gulf countries.

Price of Oil

When considering that oil prices have been fluctuating since the 1970s till 2008, the UAE has already gained lots of experience regarding the instability of oil prices and how the fluctuation influences the finances of the country.

Furthermore, the UAE has diversified its economy and is no longer dependent solely on oil as a source of income. In addition, it is important to point that currently oil revenues contribute far less to the UAE’s GDP in comparison to the past, when oil revenues contributed approximately 90%.
During 2014, the UAE also decreased the amount the country spent on electricity and water subsidies without facing any difficulties
.
It is also significant to note that as a result of oil price deregulation, all efforts are being put towards the development of clean energy projects that will ascertain the future of the upcoming generations. 

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