27 August 2017

The President of the United Arab Emirates, Sheikh Khalifa bin Zayed Al Nahyan, has approved a law to introduce a new 5 percent value-added tax (VAT) starting January 2018, the ministry of finance said on its website on Sunday.

Federal Decree-Law Number 8 of 2017 sets the general rules for the implementation of the new tax and includes some details on the goods and services subjected to VAT, as well as those that will receive special treatment.

Full details of the scope of VAT implementation will be revealed in the law’s regulatory framework, which is expected to be released by the fourth quarter of this year.

Details of the VAT law were similar to recently-updated information on the tax that was published on the UAE’s ministry of finance website in July.

According to the details of the law released on Sunday, some goods and services will be subject to a zero rate of VAT, which allows suppliers to claim back VAT paid on business costs. Those products and services include goods that will be exported outside of the Gulf Cooperation Council states that are implementing VAT. Certain investments in precious metals will also be subjected to a zero rate VAT.

Recently-built residential properties will also be subject to VAT at a zero rate for the first three years after a property’s completion, to allow developers to recover VAT on construction costs.

Some services and sectors related to education and health care will also be zero-rated, including schools and universities that are funded or owned by the federal government. The regulatory framework will include more details about the tax implementation on the two sectors.

The new VAT law also listed a number of products and services that will be exempted from paying VAT, which, unlike zero-rated VAT, does not allow for the reclamation of VAT paid on business costs. 

The products and services exempt included residential properties, local transport, empty lands and some financial services. As with precious metals, details on which financial services benefit from special treatment will be detailed later in the law’s regulatory framework. Click here to see the full details of the VAT law.

The six members of the GCC, which includes the UAE, Saudi Arabia, Bahrain, Qatar, Kuwait and Oman, agreed in 2016 to introduce VAT as a means to diversify government revenue sources and reduce reliance on crude oil exports after oil prices took a sharp drop in mid-2014. Each country is expected to introduce its own VAT law and regulatory framework.

The director-general of the UAE’s Federal Tax Authority, Khalid Al Bustani, said in a press conference two weeks ago that companies in the UAE will be able to start registering for VAT from the middle of next month. He also said that the UAE and Saudi Arabia will be the first GCC countries to implement the tax on January, 1, while the rest of the GCC countries will follow in the 2018.

Click here for Zawya’s special coverage on the VAT

© Zawya 2017