UAE Introducing Value Added Tax From January 2018

Abu Dhabi skyline in the UAE

The United Arab Emirates (UAE) has recently announced that it will be introducing Value Added Tax (VAT) for businesses and consumers next year, bringing it in line with many other nations.

The ruling will take effect on January 1st 2018, with a VAT rate of 5%. Businesses whose supplies and imports exceed an annual value of AED 375,000 will have to register before then, with online registration becoming mandatory in the fourth quarter of 2017.

Businesses whose supplies and imports fall between AED 187,500 and 375,000 may also voluntarily register. All businesses are asked to keep accurate financial records for future reference, so that VAT liability can be determined.

The Treasury expects that businesses will have to report their VAT quarterly, although there may be instances where reports are given more frequently. Businesses will be required to keep their issued and received VAT receipts for a minimum of five years.

Similar to most other systems, businesses who have paid too little VAT at the end of the year will have to pay the difference to the government, while businesses who have overpaid will receive the difference back. Some goods, such as health products, will be VAT exempt.

The Treasury advises that businesses prepare for VAT by reassessing their financial management and bookkeeping. While the legislation is yet to be finalised, it is plausible that many businesses will have to lean more heavily on accountants and tax advisors.

Business registration can be undertaken at the UAE Ministry of Finance website, and requires an application letter signed by your company authorities and a photocopy of a valid trading licence. It is likely that the payments and reimbursements will also be made online.

Individuals (such as sole traders and entrepreneurs) applying for a VAT certificate will be required to submit a signed request letter, a residence permit and a photocopy of their passport. These will only be valid if the person or company has already been registered online, and has paid any requisite fees.

Living expenses for consumers and prices for tourists will rise slightly, with the proceeds going to the Treasury. Businesses should not be affected, with VAT acting as a ‘pass through’ tax levied on consumers.

The implementation of VAT shows many similarities to other countries, particularly the UK. The online payment process and documentation should be familiar to British based businesses, although the rate of VAT in the UAE is far lower.

For more information on the introduction of VAT to the United Arab Emirates, please get in touch to see what VAT Experts can do for you.