GCC UAVAT: The UAE to implement VAT in 2018 What we know so far
By Karbal & Co, Legal Consultants
Last updated: 27 April 2017
With the Gulf nations aiming to diversify their economies through the implementation of a VAT in 2018, what can we expect?
In recent years, the Gulf States have sought measures to diversify their economies to reduce their oil dependency and seek alternative means of state revenue.
In a unified effort, six GCC countries have announced plans to simultaneously enact a VAT law by January 1, 2018 under the Unified Agreement for Value-added Tax (â€œUAVATâ€). The VAT shall levy funds at a rate of 5% for both goods and services that are sold or provided to consumers within the Gulf States.
When shall the law come into force?
Although the legal framework shall be agreed upon between the countries by January 1, 2018, the VAT law shall be implemented in the GCC countries between January 1, 2018 and January 1, 2019. The UAE has stated in particular that it shall implement the law by January 1, 2018.
To whom is the law applicable?
Not all businesses operating in the UAE will be required to pay a value-added tax. According to a statement issued by the UAE Ministry of Finance, companies whose annual revenue exceeds AED 375,000 shall be required to register with the relevant authorities and pay the tax. However, companies whose annual turnover is between AED 187,000 and AED 375,000 have the option to register. Although the 5% VAT may be applied to all industries operating within the UAE, specialists believe that certain industries may be exempt, including water and energy (oil & gas and renewable energy). Additionally, international trade between GCC member states is likely to call for special statutory exceptions to facilitate trade between the countries. It is also unclear whether the VAT will be applied to imports. The details of the legislation for each GCC member state remain to be seen.
Concerns have been raised about the applicability of the VAT to consumer goods. Reports indicate that in its essence, the VAT aims to tax tobacco, energy drinks and soft drinks. A list of 100 items shall be issued stating items that shall be exempt from the VAT tax, including healthcare, basic food items and education fees.
Measures taken to enact law
Member states in the GCC shall have from January 1, 2018 to January 1, 2019 to implement the legislation internally by enacting their own laws. It is therefore presumed that each member state shall impose its own specific details on VAT compliance requirements for companies.
Although the UAE has yet to release the general framework for the VAT law, reports indicate that the UAE has drafted a law internally. In anticipation of the implementation of the new GCC VAT law, the UAE established a Federal Tax Authority which shall enforce federal tax laws and levy taxes. The Federal Tax Authority shall also perform tax audits on firms and issue penalties in the case of non-compliance.
Significance of new tax law on businesses operating in the Emirates
Many questions raised by businesses operating in the Emirates concern compliance for the highly anticipated tax law. Compliance with the legislation will most likely include periodic reporting requirements, such as quarterly or monthly filings for VAT returns. A predicted effect of the tax law shall be an increase in detailed record keeping for businesses. Furthermore, if companies shall be expected to periodically remit funds to the Federal Tax Authority, companies may be faced with issues concerning cash flow management.
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Karbal & Co is an international law firm with offices in Dubai, United Arab Emirates and Tripoli, Libya. Our corporate law practice advises clients on all ownership, corporate governance and regulatory matters. Our experience includes setting up companies, ownership agreements and drafting articles of association for various different companies in the information techonology, medical and oil & gas industry.