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What is VAT?
VAT is a tax on the consumption of
goods and services levied at the point
of sale and has been set at 5 per cent
across GCC countries. This rate is
among the lowest in the world, with
some countries charging VAT of more
than 20 per cent.
Where can I read more about it?
The official title is Federal Decree-Law
No. (8) of 2017, on Value Added Tax.
An English version is available on the
UAE Federal Tax authority website
(https://www.tax.gov.ae).
VAT puts a standard rate of tax
(5%) on goods and services – why
is it complex?
Several reasons:
1) Not everything will be taxed.
2) There are new legal concepts (and a
bit of jargon) to understand.
3) Some things – like the place of
supply of electronic services – can be
quite difficult to define.
4) The GCC is a customs union – so,
implementing national VAT laws and
keeping the benefits of a transnational
economic bloc may be a challenge.
5) Some GCC states (like the UAE)
are further ahead than others, so all
GCC states may not implement VAT on
January 1, 2018.
Why isn’t everything taxed?
1) Some goods and services (for
example education and healthcare)
provide social benefits, so the
government doesn’t want to make
them more costly than necessary.
2) A few things like “bare” land cannot
be consumed (and VAT is a tax on
consumption).
3) Some things (for example some
financial services) are too difficult to
tax.
4) Various goods and services are
not taxed because they are exempt;
others are not (in effect) taxed because
the tax is 0% (zero-rated supplies).
All such supplies are VAT-free to the
consumer, but whether the supply is
exempt or zero-rated will make a big
difference to the taxable entity making
the supply.
Here are some of the most commonly asked questions…
What does it mean for you?
FEATURE