President of the United Arab Emirates (UAE) , Sheikh Khalifa Bin Zayed Al Nahyan, has issued Federal Decree-Law No. (8) of 2017 for Value-Added Tax (VAT Law) on August 23, 2017 which comes into effect from January 1, 2018.
“The Federal Decree-Law is the bedrock of the UAE’s planned tax system. ” said His Highness Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai, UAE Minister of Finance and Chairman of the Federal Tax Authority. “The Value-Added Tax, which is set to be implemented across all GCC countries over the next two years, will bring a new revenue stream for the national economy and GDP. The newly introduced Value Added Tax that shall be implemented in the GCC depending on readiness of each member State between 1 January 2018 and 1 January 2019 pertaining to the Common VAT Agreement of the States of the GCC, will have positive results on the economy, far exceeding its 5% rate, given that revenues will be redistributed to development projects that benefit society at large and accelerate progress until the UAE reaches the top of global rankings across all sectors”.
Below the summary of VAT according to VAT law and information from the UAE Ministry of Finance (MoF) and the UAE Federal Tax Authority (FTA).
Rate
A standard rate of 5% shall be imposed on any supply of goods and services or Import including what is deemed to be a supply. There are certain exceptions where the rate of 0% will apply and exempt from VAT.
Cases of VAT exemption:
- The supply of some financial services (including life insurance);
- Residential properties;
- Bare land; and
- Local passenger transport
VAT will be charged at 0% in respect of the following main categories of supplies:
- Exports of goods and services to outside the Gulf Cooperation Council (GCC - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE);
- International transportation, and related supplies;
- Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
- Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
- Newly constructed residential properties, that are supplied for the first time within 3 years of their construction ;
- Supply of certain education services, and supply of relevant goods and services;
- Supply of certain Healthcare services, and supply of relevant goods and services;
- Supply of crude oil and natural gas.
Registration
There is mandatory and voluntary registration for VAT. VAT law is applied to a natural or legal person. The recently established FTA is authorized to register the persons for VAT.
Registration for VAT is mandatory when it meets the following two conditions:
1) Person has a Place of Residence in UAE or other GCC countries and
2) The total value of all supplies exceeded the mandatory registration threshold of AED 375,000 over the previous 12-month period or it is anticipated that the total value of all supplies will exceed the mandatory registration threshold of AED 375,000 in the next thirty (30) days.
Every Person, who does not have a Place of Residence in UAE or other GCC countries, shall register for VAT if he makes supplies of goods or services, and where no other Person is obligated to pay the VAT on these supplies in the UAE.
