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Everything you need to know about VAT in the UAE

UAE VAT

It’s finally here. Yesterday, the UAE’s value-added tax (VAT) law was unveiled, setting out the rules and regulations needed for implementing the new tax on January 1, 2018.

We’ve heard plenty about what the tax law was expected to contain in recent months, and the final product is largely similar to previous guidance. As expected, businesses with over $100,000 of annual revenue will have to register for VAT, which will essentially be a 5% tax rate on the import and supply of goods and services sold in the UAE.

As a consumer, here’s how that will affect you.

Low rates

Before we get into the practical effects of the VAT laws, it’s important to remember that, while you may be baulking at the prospect of increased consumer prices, the UAE will still have one of the lowest rates of VAT anywhere in the world. At just 5%, VAT in the UAE will be considerably lower than in most other developed countries. And the government revenues that the new tax will bring in will allow the UAE to continue building itself up as a global power player while diversifying its economy away from oil. That means a more stable economy, and ultimately better prospects for both local and expat residents.

Shelf prices

According to experts, the prices you see on shop shelves will be the prices you’ll pay at checkout – with VAT already taken into consideration. This means that the UAE VAT system will be more akin to the European one. In the United States, VAT is added onto products at the point of purchase, so the price you see on the shelf won’t be the price you pay at the cashier. The UAE is keeping things simple, keeping consumers informed about how much goods and services will cost them.

That said, do expect to pay more for certain goods and services. The tax applies to the import and supply of goods and services at each stage of production and distribution. This means that, if the product is imported, and then goes to a distributor, and then goes to a shop, it’ll have gone through a few rounds of 5% tax before getting to you as a consumer. And it’s the same story for products that go through several stages of manufacturing within the UAE.

Still, according to one government official, overall consumer prices will rise by just 1.4% as a result of the new VAT laws. Naturally there’ll be some spikes with certain goods and services, but on average, the increase isn’t too bad.

Air fares

If you’re worried that the cost of flying home, or on your next holiday, will go up by 5%, you don’t have anything to fear. As part of the new UAE tax law, international transportation, and related supplies, will be charged at 0% VAT. That means prices will go unchanged. We don’t know yet whether travel insurance will be included in that 0% charge, though.

Rent

We’d heard before that residential rents will be unaffected by VAT, and the rumours were right. According to the tax law, residential properties will be exempt from VAT. And newly constructed residential properties, supplied for the first time within three years of their construction, will see a rate of 0% applied to them.

Healthcare 

While details on this are still a little hazy, the UAE’s Federal Tax Authority says that the supply of certain healthcare services, and supply of relevant goods and services, will be charged at 0% VAT. What we can assume from this is that the majority of your healthcare costs will likely be unaffected by VAT. And we’ll have to wait and see whether health insurance will be subject to the tax.

Schooling 

Like healthcare, the supply of “certain education services, and the supply of relevant goods and services” will be charged at rate of 0% VAT. What we can assume from this is that school and university tuition fees will be unaffected by the new VAT rules. Official textbooks might be exempt, but you can probably assume that some forms of stationary and supplies will see the 5% rate added to their prices.

Local transport 

Local passenger transport will be exempt from VAT, according to the Federal Tax Authority. This means that taxi, bus, water taxi and Metro fares will probably remain unchanged. However, the Tax Authority makes no mention on the sale of new or used cars in its list of exemptions. This means that, if you’re buying a car after January 1, you’ll probably have to add 5% to its price. Ditto for the car insurance.

Financial services

The new laws say that the supply of “some financial services” will be exempt from VAT. Unfortunately, we don’t have much more information on exactly which financial services will be exempt, but it could be that mortgagesloans, credit cards and other interest-based business models will be unaffected by VAT. Still, we’ll have to get back to you on that one.

Food 

There were previously rumours that VAT won’t apply to certain basic food supplies. However, with the new law, the Federal Tax Authority hasn’t made any mention of food items being exempt or being charged at a 0% rate, meaning we’ll have to assume that food will be subject to the 5% rate of tax.

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