UAE and Saudi Arabia begin VAT levy for first time

UAE and Saudi Arabia begin VAT levy for first time

Value Added Tax (VAT) has been introduced in the United Arab Emirates and Saudi Arabia for the first time from January 1.

The new levy, which has been set at 5% is now being applied to the majority of goods and services in the regions, with UAE estimates predicting that in the first year, VAT income will be around 12 billion dirhams (£2.4bn; US$3.3bn).

Petrol and diesel, food, clothes, utility bills and hotel rooms all now have VAT applied in both Saudi Arabia and the UAE, according to local reports.

There are some exemptions from the tax that have been given a zero-tax rating, including medical treatment, financial services and public transport.

Saudi crown prince

As reported, across the last 18 months Saudi Arabia has been implementing its plans to diversify their sources of income away from oil reserves, with a fleet of new changes being implemented as part of reforms led by Saudi crown prince Mohammed Bin Salman, pictured left, as it bids to diversify away from oil.

In Saudi Arabia more than 90% of budget revenues come from the oil industry while in the UAE it is roughly 80%.

In Saudi Arabia there has been a fleet of levies on expats and a tax on tobacco and soft drinks. In the UAE road tolls have been hiked and a tourism tax has been introduced.

It has also implemented a clampdown on free medical cover for expats. But despite the introduction of VAT, it has been said that there are no plans in either region to introduce income tax, where most residents pay 0% tax on their earnings.

The other members of the Gulf Co-operation Council (Bahrain, Kuwait, Oman, and Qatar) have also committed to introduce VAT, though some have delayed plans until at least 2019.

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Gary Robinson

Commercial Director, Head of Video at International Investment.

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