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VAT in the UAE? Here’s what you need to know

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Dubai was a dramatically different place before its ancestors struck oil. That discovery thrust the city into a future of wealth and prosperity. Skyscrapers sprouted from the ground, super highways were constructed and this modestly sized city placed its nation of the map. When asked what inspired their move from their hometown to Dubai, almost every expat will chirp about the endless sunshine and taxless society. These perks come with their own harsh realities. The endless sunshine is indeed seemingly endless and scorching. And the taxless society is about to take a turn too – starting from the first day of 2018, to be exact. Yes, you read that right. The UAE is implementing VATs, starting from 2018. It will be joined by the rest of the GCC that has the entire year to issue a properly structured tax framework. Here’s what you need to know.

VAT and the common man

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A senior official at the UAE’s Ministry of Finance confirmed earlier this year that VAT is indeed coming after your pockets. He estimated that the tax may range from three to five percent. While this isn’t the best news for the UAE’s residents, it spells a lucrative future for the country. It is predicted that the UAE will rake in anything between 10 to 12 billion dirhams in the first year alone!

“The VAT can be introduced once any two of the GCC countries are ready with their tax laws and present the same to the GCC Secretariat”, Younis Haji Al Khoori, the official from the Ministry of Finance shared with Emirates 24/7 in an interview in January this year.

What’s included and excluded from VAT?

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If you enjoy a cocktail after an exhausting day at the office or chug on cigarettes, you’ve already trained your wallet to in the gentle art of paying taxes. For those anxious about what the new VAT law will mean for economically unstable households, the UAE has kept this in mind. A hundred staple food items, education, and healthcare will be exempt from VAT. Although, you might have to get used to paying more for a pearl necklace you fancy at the souq or for a ticket at the cinema. Entertainment, jewelry, cars, private dining and luxury services will be slapped with a VAT.

A brief history of VAT

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If you lived in the 1950s, you’d be able to buy as many the cans of deluxe hairspray as your dramatically large hair desired. VAT is a relatively new concept, that was introduced in the 60s and 70s. Developing countries are still catching up with this, and have been since the 80s.

Sijbren Cnossen, a leading VAT expert from the Netherlands, called its spread “the most important event in the evolution of tax structure in the last half of the 20th century”.  VAT is considered the third largest source of government revenue, following income tax and national insurance. VAT’s predecessor was called a Purchase Tax, which was charged at 33.5 percent. This system has evolved over the years, and is still developing depending on varying economies.

The UAE’s VAT will be limited to a modest five percent. It is not expected to dramatically affect product and service consumption in the UAE. Before you go, here’s a fun fact: Antiques, cremation, and postage stamps are exempt from VAT. So there’s hope of saving a few pennies after all!

 

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