UAE Post-VAT Implementation
By Mohammed Aweidah, Al Zarooni Tureva, Auditors, Accountants, Advisors
The UAE introduced Value Added Tax (VAT), an indirect tax imposed on the purchase of goods and services, at a standard rate of 5%, effective 01 January 2018. Since then, companies have restructured their business models to include VAT in all of their operations. As a new income-generating factor for the UAE, VAT has helped in the development of the infrastructure and contributed to economic growth of the country.
Doing business in the UAE is still favourable, despite the implementation of VAT. Any registered business can reclaim the VAT they may have incurred in their operations. End-users ultimately bear the VAT cost; businesses, in effect, act as a tax collector on behalf of the Federal Tax Authority (FTA) in the UAE.
The FTA is responsible for implementing VAT. It has diligently provided guidance whilst collecting VAT and conducting audits.
Tourists in the UAE can also reclaim the VAT they have paid when they leave the country on the condition that they pay a 15% administrative fee as well as a 4.8% “tag fee” (of the VAT that they previously paid) for every individual claim.
While the UAE Finance Minister has stated that it is premature and too early to determine the full effects of VAT on the economy of the country, the UAE has noted significant improvements since 2019, notably:
The UAE jumped two places, (to 36th place) in the 2019 Global Innovation Index, since the UAE achieved a “good standing”. This position reflected significant improvements and high performance in categories such as human capital, R&D, infrastructure and other creative outputs and institutions.
According to the Quarterly Economic Review of the Central Bank of the UAE (Q4 – 2019), the UAE’s overall real GDP [Gross Domestic Product] was estimated to have grown by 2.9%.
As per October 2019, the Global Competitiveness Report, released by the World Economic Forum, found the UAE ranked first in the Arab World and 25th globally. “The UAE lead in macroeconomic stability is yet another proof of the vibrancy, strength and resilience of the national economy to ride over challenges facing the world economy today, and to keep abreast of the latest economic development trends,’’ says UAE Economic Minister, Sultan Bin Saeed Al Mansouri.
The UAE’s finance offcials have been quick to deny any plans to increase VAT, being very mindful of all of the participants in the country’s economy.
The UAE projects it will generate AED 37 billion of income added to its GDP in the year 2020 due to its implementation of VAT.
In response to the COVID-19 outbreak, the UAE has implemented some tax reliefs, and deferment schemes to enhance liquidity. On 12 March 2020, an economic stimulus package and deferred VAT filing for one month was announced. All FTA services were provided remotely, to encourage registered businesses to comply with the tax procedures while avoiding direct physical contact.
Mohammed AweidahGGI member firm
Al Zarooni Tureva, Auditors, Accountants, Advisors
Advisory, Auditing & Accounting, Tax
Dubai, Ras Al Khaimah, UAE
T: +971 4 268 99 01
Al Zarooni Tureva is an exclusive, independent firm with ACCA affiliation and DIFC approved auditors, who are highly skilled in providing Auditing, Accounting & Controlling, Company Formation in the UAE, International Tax Advice, and Business & Personal Financial Consulting.
Mohammed Aweidah is a member of the UAE Accountants & Auditors’ Association. He holds extensive experience in Auditing, Financial Advisory, International Tax Advice, VAT regulations in GCC countries, Company Structuring, and various industries. He is fluent in Arabic, English, and Hebrew.
Published: Indirect Taxes Newsletter, No. 11 Autumn 2020 l Photo: samott - stock.adobe.com