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VAT in Dubai

VAT in Dubai

Updated on Tuesday 25th April 2017

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VAT_in_Dubai.jpgThe value added tax is an indirect tax that is not imposed in Dubai for the moment. This tax is going to be implemented in the UAE only after the 1st of January 2018. The low rate of 5% at which VAT is going to function in the UAE is a strong reason for many foreign business owners to continue to operate in this country. The absence of this tax is one reason why many foreign business owners open companies in Dubai.
The first information regarding the introduction of the value added tax in Dubai came after a report issued by the World Bank regarding the introduction of the VAT in the countries forming the Gulf Cooperation Council. An official confirmation from the GCC countries have been the declaration of the UAE Minister of State for Financial Affairs who stated that the VAT will be introduced also in the other GCC states at latest starting from 2019. The GCC refers to the Arab states of the Persian Gulf, except Iraq, namely: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

You can rely on our law firm in Dubai for actualized information regarding the status of VAT implementation in Dubai as well as on legal services such as tax planning in the UAE.


The purpose of VAT in the UAE

The value added tax (VAT) is a consumption tax. From the buyer’s standpoint, it applies on the purchase price of the product or service being bought. For the seller, it applies on the value added to the product from an accounting point of view.
The purpose of the VAT is to generate taxes to the government, as the corporate income tax or the personal income tax. Generally, the value added tax applies to all types of goods and services. Countries generally have one standard VAT rate and additional reduced rates for certain products or services. The collection of VAT can be made using an invoice method or an accounts method.
Our lawyers in Dubai can tell you more about the general implementation of VAT for companies and offer you more information about taxation in Dubai. If you are doing business in other countries that apply VAT, you should know how this tax is applied to your products or services.

The implementation of VAT in Dubai

The VAT will be applied in the GCC countries at a very advantageous rate of only 5%. Moreover, investors operating in certain business sectors, such as basic food items, healthcare and education are going to benefit from preferential rates. The Federal VAT Law and the VAT Executive Regulations are still processed for approval by the authorities and are going to be made public as soon as their processing will be completed. 
The six member states of the GCC have signed the VAT Framework Treaty which provides certain common principles in the calculation and application of the VAT. UAE has the possibility to impose different VAT treatments to different supplies. Most experts expect that the recommended system would be one that distinguishes between heavily used products, like foodstuffs that should be tax exempt and other goods, such as luxury items and certain services that should have a VAT tax applied to them. Luxury clothing, jewellery, cars and cigarettes would probably be the first to be considered for VAT in Dubai. Our Dubai lawyers are ready to explain you in detail the provisions regarding VAT in the UAE and to help you comply with the legislation in force on this matter. 
The choice to implement VAT in Dubai is treated with care by the authorities so that the balance of the economy would not to be affected by the change. In order to complete this important modification, Dubai is elaborating ways to make the VAT implementation convenient for investors and individuals in the emirate. The final provisions will include reference to the recovery rights for VAT in the UAE. The authorities will have to take into consideration as well the transitional periods and to elaborate the rules which are going to be applied along this time frame. 
Another aspect to be settled is the conditions for VAT refund and the type of expenses which investors will be able to cover from it.
For more information about taxes in Dubai and if you are interested in knowing more about double tax treaties concluded with other countries, please contact our Dubai law firm.


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