Value Added Tax (or VAT) is an indirect tax. VAT is one of the most common types of consumption tax found around the world. VAT will be another source of raising revenues for governments in the Gulf Cooperation Council (GCC). Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia. VAT is the largest-ever tax reform in the fiscal history of UAE.


After implantation of VAT at 5% in January 2018, the UAE is expected to generate DH 12 Billion additional revenues for the first year.


Consumers bear the VAT cost while business owners collect and account for Tax which is basically like collecting tax on behalf of government. The UAE government has already announced that 90 plus food items, health, education, bicycles, and social services would be exempted from VAT.


GCC countries are also expected to introduce excise duties on certain beverages that are deemed to be harmful to health, including those with high sugar content as per leading newspaper.


VAT will provide UAE with a new source of income which will contribute to the constant facility of high quality public services into the near future. It will also help government move towards its vision of reducing necessity on oil and other hydrocarbons as a source of revenue.


The Companies in the UAE that report annual revenues of over Dh 375,000 will be obliged to be registered under the GCC VAT system.


The companies whose revenues fall between Dh187,500 and Dh 375,000 will have the option to register for VAT during the first phase of the VAT implementation.


It is also understood, that it will eventually become obligatory for all companies to be registered under the system, when it is rolled out in the second phase, regardless of the reported revenues.


After the implementation of VAT, the good news is UAE will remain tax-free in many ways as there is no income tax on salaries. To keep common many delighted, the government will exempt 90 plus food items, health, education, bicycles, and social from VAT. That means your grocery, hospital or school bills will most likely remain unchanged, unless there are price hikes.


Electronics, smart phones, cars, jewellery, watches, eating out, and entertainment will fall under the taxed category.


Example :  If you wish to buy a new mobile phone that cost Dh 2000. Be prepared to pay extra Dh 100 (VAT at 5%). So the total cost to buy your phone would be Dh 2100.


The businesses will be required to record their financial transactions and ensure they are accurate and updated. Businesses that meet the minimum annual turnover requirement will be required to register for VAT.


VAT Businesses qualified must :

  • Levy VAT on taxable goods or services they supply
  • May reclaim any VAT they’ve paid on business-related goods or services.
  • Keep a range of business records which will allow the government to check that they have got things right
  • If you’re a VAT-registered business you must report the amount of VAT you’ve collected and the amount of VAT you’ve paid to the suppliers on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.
  • If you’ve collected more VAT than you’ve paid, you have to pay the difference to the government. If you’ve paid more VAT than you’ve collected, you can get refund from the Federal Tax Authority


If the initial date for the VAT roll-out is followed, businesses can probably start registering for VAT from 1st October 2017. As announced recently, the registration will be open three months before the go-live date. Companies will have the option to register online.


For most businesses, VAT returns should be filed every three months. Filing of returns can also be done online using the government’s eService’s.


For more details on VAT , please contact Hallmark International Auditors.