UAE and Oman takes early lead in the introduction of Value Added Tax
15 November 2016
Earlier in the year the members of the Gulf Cooperation Council (“GCC”) namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE agreed to introduce Value Added Tax (VAT).
On 24 October 2016, His Highness Sheikh Khalifa bin Zayed Al Nahyan (president of the UAE), issued federal law 13 of 2016 establishing a Federal Tax Authority (“FTA”) in the UAE to govern federal taxes which will include VAT. The decree is to be published in the official Gazette and should come into effect 90 days following its publication.
The creation of the FTA enforces the intention of the federal government to implement VAT by January 2018. Furthermore, it will bring UAE laws in line with international tax developments such as tax treaties, global tax information exchange programs (such as FATCA, CDOT and CRS).
The introduction of VAT in UAE will affect both businesses, which will have to adapt their systems and processes to enable them to collect, record, report and pay VAT to the FTA, and individual consumers, who will (indirectly) bear the burden of the increase in the prices of goods and services.
In terms of the specifics of the implementation, little has yet been confirmed by the federal government. However, it is expected that certain categories of goods and services, such as basic foodstuffs, healthcare and education will be exempt from VAT or carry a “zero-rate” in order not to overburden individual consumers.
The UAE Ministry of Finance has produced a Frequently Asked Questions on the introduction of VAT which are reproduced in Appendix 1 below.
Oman has recently announced that it will introduce VAT by the beginning of 2018 in a move to increase its revenues amid the drop-in oil prices.
The proposed tax law has been drafted and will be submitted to the legislative authorities. It is likely to be officially approved in the coming weeks and will be formally implemented in 2017.
Whilst VAT is ultimately a tax on the supply of goods and services to the final consumer, the charge of VAT will mean that businesses will become unpaid tax collectors for the federal government. Consequently, this will increase the administration and IT related costs. In these circumstances, it is imperative for businesses to start planning their VAT strategy and implementation road map immediately to minimise these costs.
In respect of the other GCC states we await formal confirmation of an implementation date for VAT. Please contact if you have any queries about the introduction of VAT in the Gulf states.
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