VAT (or value-added tax) has been around in the UAE for a few months now, and residents have been getting used to life with it. If you’re new to the UAE, or wish to know more about the country’s latest tax, this guide may be of use to you.
What is VAT?
A value-added tax is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, minus any of the costs of materials used in the product that have already been taxed. In layman’s words, it is similar to a sales tax and is applicable on most goods and services. The tax, although charged by the seller, is indirectly charged by the government which collects the revenue amount in full.
It is estimated that the UAE will generate more than Dh12 billion additional revenues in the first year after implementation of this new tax.
Why has it been applied in the UAE?
The UAE has steadily built up its infrastructure and public services over the last 3 decades to match any developed country in the world, and has up to this point maintained them at its own expense. VAT will provide the country with an additional source of income to help it continue to provide these high-quality services, and will also help it move away from being an oil-based economy.
Is everything taxable?
Not really. In many ways, the UAE is still going to be tax-free. There is no income tax on salaries here, and free zones in the country also offer a tax free environment.
What will be exempt from the tax?
The government will certainly exempt many supplies most likely to impact the common man to ensure that the impact of VAT is kept to a minimum. Essentially, the intentions of most governments when introducing a VAT is to focus more on taxing discretionary spend by consumers, while ensuring that those at the lower end of the spectrum are protected and assisted. The UAE government has already announced that services and goods like health, education, bicycles, and social services would be exempted from VAT.
What will be taxed?
Expect to pay taxes on all goods such as electronics, smartphones, cars, jewellery, watches, as well as when eating out or indulging in some entertainment, among other things.