News of VAT

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Introduction of the value-added tax (VAT) is one of the most thrilling questions among people of UAE.
There are many details which are clearly stated but some doubts and questions remain.

The regulations give more details on specification of goods and services that will have the full 5 percent VAT charge, VAT-exempt and zero-rated.

A table detailing the VAT treatment of sectors such as food & beverages, financial services, real estate, transport and precious metals was published by the UAE’s Federal Tax Authority (FTA) on Tuesday.

But insurance and property sectors are still under some questions for some people.

The UAE’s new regulations ensured more clarity of how long term contracts should be treated for VAT purposes.

The definition of designated zones within the Executive Regulations is quite clear, relating only to fenced off, secure zones with bonded warehouses and other customs controls.

The readiness among businesses for VAT within UAE businesses varied much, with many larger firms well-prepared but that lots of SMEs had adopted a ‘wait-and-see’ attitude until the rules had been published.

Businesses had to register till December 4, in order their registration to be ready for 1 January 2018. Those who were not able to submit a registration application within timeframe provided in the Tax Law will have administrative penalty of AED20,000 ($ 5446)

Why is VAT necessary for UAE?

The expected budget income from VAT in the UAE are 10-12 billion dirhams after the first year of tax collection. And this is without some types of food, some sectors of health and education, partially exempt from tax.

Specialists note that the VAT system can have different effects on consumers in the UAE. Everything depends on the level of their income and the amount of money they are willing to spend on goods and services.

The VAT rate of 5% is quite low, given the solvency of the population and the fact that basic foodstuffs will stay tax free. Nevertheless, the tax rate can somewhat reduce the purchasing power.

The UAE needs this tax reform, since new sources of income are needed to ensure a high quality of life and further development of the infrastructure. Specialists note that a 5% VAT rate will not have a negative influence on the standard of living of the population. The introduction of VAT is aimed at restoring the UAE’s economy, maintaining national wealth and reducing dependence on oil products.