The UAE’s most profound innovation in decades

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The introduction of VAT in the UAE can be denoted as a change in public finance at a historical level and undoubtedly the most profound innovation in decades. There are still many discussions and worries about this topic.

Retailers, auto dealers, supermarkets and other businesses may be increasing a sense of anxiety as they coax customers into buying and stocking up before January 1 – a smart marketing way, and sadly one that has a lot of people falling for it. But what we need to understand is that at five per cent, and with the range of products that would attract consumption tax, household budgets should suffer a spike of around 3 to 3.5 per cent. But it will not break the budget. We should rememeber that such important spheres as medicines, airline tickets, rents, residential property still remain outside the ambit of VAT.

Consumers and businesses will get a fair idea in a month or so.

Remind…
All producers and suppliers of goods and services fall under the VAT, except for certain cases specified in the Law. The rate is 5%. The duty of the UAE resident taxpayer is to be registered in connection with the performance of activities subject to VAT, as well as reporting VAT to the tax authorities.

The law defines activities subject to zero rate: the supply of goods and services outside the member states of the Council for Cooperation of the countries of the Persian Gulf; international passenger transportation; air transportation; delivery of ships of air, sea transport and land vehicles; supply of transport for rescue services; Supply of auxiliary goods for the above modes of transport; supply of valuable metals; the first sale of residential property within 3 years after the completion of construction; the first sale of real estate used for charity; sale and rental of real estate after transfer from non-residential to residential; supply of crude oil and gas; provision of educational services; rendering of medical services.

Separately, the law lists activities that are not subject to VAT: certain financial services, the provision of residential real estate and land (through sale or leasing), the provision of domestic passenger transport. The conditions for exemption and specific requirements will be additionally established by a regulatory act auxiliary to the Law. In the same way, the amount of the minimum threshold for the tax base will be established, exceeding which will result in VAT taxation.

The purpose of introducing VAT is to create a new source of revenue for the budget, with the subsequent expansion of the quantity and improvement of the quality of public services provided by the UAE to its population.