The cabinet of the United Arab Emirates on Thursday issued two laws detailing how the new five percent value-added tax (VAT) will be applied to free zones, medical drugs and equipment, according to a copy of the laws published on the Ministry of Finance’s website .

Cabinet decree number 56 said that medications and medical equipment that are registered with the Ministry of Health and are either produced locally or imported will be subject to VAT at a zero percent rate, which means that the consumer will not pay the five percent VAT and the companies and institutions working in the business of medical drugs or equipment will be allowed to reclaim the VAT they paid on their business expenses.

The law defined medications as products that are offered or sold to diagnose, treat, heal, relieve or prevent diseases, or renew, correct or rehabilitate the function of body organs. As for medical equipment, it said this includes instruments, motors, implants, detectors or systems along with any accessories and operating software, used in cases related to diagnosing, treating, relieving, controlling or preventing diseases, injury or disability.

The second cabinet decree, number 59, listed 20 free zones where VAT would be subject to special treatment. The zones were located in the seven emirates of the UAE as illustrated in the table below:

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The transfer of goods between designated zones, according to article 51 of the UAE’s executive regulations, will not be subject to tax under two conditions:

1-When goods or parts of them are not released from the designated zone and are only being transferred from one designated zone to another.

2-The transfer process has to be done in accordance with the Common Customs Law implemented in the Gulf Cooperation Council (GCC) countries.

All six Gulf Cooperation Council members - Saudi Arabia, UAE, Qatar, Kuwait, Bahrain and Oman agreed in 2016 to introduce VAT at a standard rate of five percent on a number of goods and services to boost state revenues after the sharp fall of oil prices that started in 2014. However, only Saudi Arabia and the UAE have implemented VAT – in both cases, from January 1 this year.

For more on the UAE’s VAT law and executive regulations:

UAE president approves VAT law

The new VAT rules: What's in store?

For more on Saudi Arabia’s VAT law and implementing regulations:

Taxing times: Saudi Arabia has approved plans for VAT, who will be next?

Saudi tax authority approves VAT Implementing Regulations

(Reporting by Yasmine Saleh; Editing by Michael Fahy)

(Yasmine.saleh@thomsonreuters.com)

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