VAT on supplies and imports will be introduced in the UAE with effect from 1 January 2018 at a standard rate of 5%.

Businesses with taxable supplies and imports exceeding AED375k (approx. US$100k) are required to register for VAT.

The deadlines for registration have been staged as follows:

• High-turnover businesses – 31 October 2017
• Medium-turnover businesses – 30 November 2017
• Low-turnover businesses – 4 December 2017

Businesses with taxable supplies and imports of between AED187.5k (approx. US$50,000) and AED375k may, but are not required, to register for VAT.

VAT was introduced in the UAE by Federal Decree Law No. (8) of 2017 on Value Added Tax, which can be accessed in unofficial translation here.

The Executive Regulations for Federal Decree Law No. (8) of 2017 (the “Executive Regulations”) were formally published on 27 November, and can be accessed in unofficial translation here.

The Executive Regulations specify, amongst other things, which supplies and imports are to be treated as exempt or zero-rated for VAT purposes.

In context

The implementation of VAT in the UAE follows an agreement between GCC member countries to roll out VAT across the region before a long-stop date of 1 January 2019. This agreement was driven, in part, by the need for the GCC member countries to explore other revenue raising measures with a view to reducing their dependency on hydrocarbons.

VAT will also be introduced in Saudi Arabia from 1 January 2018. There is now some doubt whether Qatar will implement VAT within the timeframe contemplated by the agreement between GCC member countries.

Impact

Businesses will have been reviewing their operations to ensure that they are able to comply with the new VAT framework. This review will have extended not only to finance and reporting functions, but also contractual and supply chain arrangements. Those businesses operating through multiple entities will have sought to rationalize their corporate structures for VAT grouping purposes.

International brands doing business in the UAE are already subject to high rents in flagship shopping malls and the costs associated with the UAE’s foreign ownership restrictions. Many will hope that the long-awaited relaxation in foreign ownership restrictions will be implemented in 2018 to set off some of the additional cost to consumers associated with the roll-out of VAT.

Consumers in the UAE can expect to experience a slightly higher cost of living. The standard rate of 5% is low by international standards, but the application of this standard rate is broad. Slightly surprisingly, the Executive Regulations envisage that the 5% standard rate will apply to all food products, including staples. Utilities will also generally be taxed at the standard 5% rate.

The Executive Regulations contemplate that a VAT refund scheme will be introduced for tourists to the UAE (although the detail and timing of any such scheme remain subject to a further Cabinet decision), and also envisage that a Business VAT Refund Scheme for foreign businesses will be implemented.

More information

The websites of the UAE Ministry of Finance (www.mof.gov.ae) and the UAE Federal Tax Authority (www.tax.gov.ae) contain helpful guidance on VAT.

Those affected by VAT should be aware that the Executive Regulations do not in all respects follow the draft Executive Regulations that were in circulation earlier this month.

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For further information please contact Jeremy Pooley, Head of Middle East Practice
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Disclaimer: This article is produced for and on behalf of White & Black Limited, which is a limited liability company registered in England and Wales with registered number 06436665. It is authorised and regulated by the Solicitors Regulation Authority. The contents of this article should be viewed as opinion and general guidance, and should not be treated as legal or tax advice.

Posted 29^th November 2017