VAT arrives in UAE

The government of the UAE have introduced value-added tax (VAT) on goods and services at 5% of their prices as of 1 January 2018. The Executive Regulations for Federal Decree-Law No. (8) of 2017 on Value Added Tax was signed in late November 2017.

In a media briefing on 12 December 2017 HE Younis Haji Al Khoori, Undersecretary of the UAE Ministry of Finance said: “Value-added tax plays a key role in achieving the leadership's vision of reducing oil dependency and building a sustainable knowledge economy. This will contribute to advancing development by providing additional sources of income for the expansion of infrastructure projects.

“VAT was introduced in the UAE after in-depth studies indicating that there would be no impact on the business sector and the investment environment in the country, nor would it affect the country’s position and competitiveness should it be implemented. In fact the UAE will implement the lowest VAT tax rate on a global level, with the aim of reaching the highest levels of happiness within the UAE community.”

Tourists will also pay VAT, but foreign businesses may recover the VAT they incur when visiting the UAE.

Businesses with turnover below AED375,000 are not required to register for VAT, but voluntary registration is accepted if the turnover exceeds AED187,500 and is below AED375,000.

Several products and services are exempt from value added tax, namely: the supply of certain financial services as specified in the Executive Regulations, the supply of residential (non-zero-rated) buildings either by sale or lease, the supply of bare land, and the supply of local passenger transport. In early December, the UAE Federal Tax Authority stated that selected sectors that will be assigned zero-rated tax, such as education, healthcare, oil and gas, transportation and real estate.

Examples provided by the Tax Authority include:

Education VAT rate	VAT rate
Private and public school education (excluding higher education) and related goods and services provided by education institution	0%
Higher education provided by institution owned by government or 50% funded by government, and related goods and services	0%
Education provided by private higher educational institutions, and related goods and services	5%
Nursery education and pre-school education	0%
School uniforms	5%
Stationery	5%
Electronic equipment (tablets, laptops, etc.)	5%
Renting of school grounds for events	5%
After school activities for extra fee	5%
After school activities supplied by teachers and not for extra charge	0%
School trips where purpose is educational and within curriculum	0%
School trips for recreation or not within curriculum	5%

Healthcare	VAT rate
Preventive healthcare services including vaccinations	0%
Healthcare services aimed at treatment of humans including medical services and dental services	0%
Other healthcare services that are not for treatment and are not preventive (e.g. elective, cosmetic, etc)	5%
Medicines and medical equipment as listed in Cabinet Decision	0%
Medicines and medical equipment not listed in Cabinet Decision	5%
Other medical supplies	5%

Oil and gas	VAT rate
Crude oil and natural gas	0%
Other oil and gas products including petrol at the pump	5%

Transportation	VAT rate
Domestic passenger transportation (including flights within UAE)	Exempt
International transportation of passengers and goods (including intra-GCC)	0%
Supply of a means of transport (air, sea and land) for the commercial transportation of goods and passengers (over 10 people)	0%
Supply of goods and services relating to these means of transport and to the transportation of goods and passengers	0%

Real estate	VAT rate
Sale and rent of commercial buildings (not residential buildings)	5%
First sale/rent of residential building after completion of construction or conversion	0%
First sale of charitable building	0%
Sale/rent of residential buildings subsequent to first supply	Exempt
Hotels, motels and serviced accommodation	5%
Bare land	Exempt
Land (not bare land)	5%
UAE citizen building own home	5% (recoverable)

Financial services	VAT rate
Margin based products (products not having an explicit fee, commission, rebate, discount or similar)	Exempt
Products with an explicit fee, commission, rebate, discount or similar	5%
Interest on forms of lending (including loans, credit cards, finance leasing)	Exempt
Issue, allotment or transfer of an equity or debt security	Exempt

Investment gold, silver and platinum, jewellery	VAT rate
≥99% pure and tradable in global markets	0%
<99% pure	5%
Jewellery	5%

Insurance and Reinsurance	VAT rate
Insurance and reinsurance (including health, motor, property, etc)	5%
Life insurance and life reinsurance	Exempt

Food & Beverages	VAT rate
Food and beverages	5%

Telecommunications and electronic services	VAT rate
Wired and wireless telecommunications and electronic services	5%

Government activities	VAT rate
Sovereign activities which are not in competition with the private sector undertaken by designated government bodies	Considered outside VAT system
Activities that are not sovereign or are in competition with the private sector	VAT rate dependent on good/service ignoring provider

Not for Profit Organisations	VAT rate
Activities of foreign governments, international organisations, diplomatic bodies and missions acting as such (if not in business in the UAE)	Considered outside VAT system
Charitable activities undertaken by societies and associations of public welfare which are listed by Cabinet Decision	Considered outside VAT system
Activities of other not for profit organisations (not listed in Cabinet Decision) which are not business activities	Considered outside VAT system
Business activities undertaken by the above organisations	VAT rate dependent on good/service ignoring provider

Free zones	VAT rate
Supplies of goods between businesses in designated zones	Considered outside VAT system
Supplies of services between businesses in designated zones	VAT rate dependent on service ignoring location
Supplies of goods and services in non-designated zones	VAT rate dependent on good/service ignoring location
Supplies of goods and services from mainland to designated zones or designated zones to mainland	VAT rate dependent on good/service ignoring location

Other	VAT rate
Export of goods and services to outside the GCC implementing states	0%
Activities undertaken by employees in the course of their employment, including salaries	Considered outside VAT system
Supplies between members of a single tax group	Considered outside VAT system
Any supplies of services or goods not mentioned above (includes any items sold in the UAE or service provided)	5%
Secondhand goods (e.g. used cars sold by retailers), antiques and collectors’ items	5% of the profit margin

In late December 2017 the Federal Tax Authority also clarified that diplomatic missions and international organisations that do not conduct business will be registered in a system that does not require a tax registration number (TRN). International organisations that do conduct business, import and export on regular basis should however register for VAT.

WAM, the Emirates news agency, also reported on 1 January the Ministry of Finance's assurance that the Federal Financial System is ready to manage all financial transactions related to VAT. The Federal Financial System is an integrated financial system that enables the ministry to finance federal entities, manage and govern financial procedures, and monitor the spending of federal entities.

Explore:

Ministry of Finance FAQ on VAT

Useful links for VAT

Deloitte has prepared a free VAT in the GCC Guide mobile app, which can be downloaded on the Apple and Google app stores

Read PwC's discussion on VAT and the movement of goods between UAE and KSA

Some businesses have already made statements online about VAT, including insurance firm AIG, telco Etisalat, e-marketplace Souq.com, and logistics firm TNT.