The United Arab Emirates (UAE) is to introduce a value added tax (VAT) levy from January 2018 for the first time — but is softening the blow by setting the rate at what it says will be one of the world’s lowest.
UAE finance minister Sheikh Hamdan bin Rashid Al Maktoum (pictured left), who is also deputy ruler of Dubai and chair of the Federal Tax Authority, said the rate has been set at just 5%, low compared with rates in, say, Europe that average around 20% as with the UK (Switzerland at 8% is Europe’s lowest, with Hungary the highest at 27%).
He described the new levy as becoming “the bedrock” of the UAE’s planned taxation system, and revealed that the move is happening in concert with the five other members of the Gulf Cooperation Council — Saudi Arabia, Qatar, Bahrain, Kuwait and Oman — and will be rolled out in tandem across the region.
The move is being seen as another step in the development of other revenues for the state to reduce over-dependency on oil revenue as traditional markets look to clean technology and renewable forms of energy.
“The new tax system will provide extra support for the government to implement the vision of the UAE leadership and build a diversified and productive knowledge economy,” he added.
‘Revenues to benefit society at large’
“The tax will have positive results on the economy given that revenues will be redistributed to development projects that benefit society at large and accelerate progress until the UAE reaches the top of global rankings across all sectors,” said Hamdan.
The Ministry of Finance said in a statement that that all supplies of goods and services will be subject to VAT at a standard rate of 5% with the exception of specific supplies for which a zero rate will be applicable.
‘Oil and gold to be exempt’
Zero rating will apply when goods and services are being exported outside the GCC and to international transportation of passengers or goods, supplies of crude oil and natural gas and to education and health services.
Precious metals such ass gold are also to be zero-rated, and the UAE’s vibrant jewellery retail sector is hopeful that a deal can be made to ensure that the zero-rating can be extended to cover all products to avoid an impact on its position as one of the world’s busiest jewellery shopping markets that attracts international customers, especially from India.