The UAE is considering levying Value Added Tax (VAT) from January 2018. The rate of VAT will be 5 per cent.
VAT will provide the UAE with a new source of income which will be continued to be utilised to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
VAT, as a general consumption tax, will apply to the majority of transactions in goods and services. A limited number of exemptions may be granted. As a result, the cost of living is likely to increase slightly, but this will vary depending on an individual’s lifestyle and spending behaviour. If an individual spends mainly on those things which are relieved from VAT, he is unlikely to see any significant increase.
The government will include rules that require businesses to be clear about how much VAT an individual is required to pay for each transaction. Based on this information, individuals can decide whether to buy something.
Businesses will be responsible for carefully documenting their business income, costs and associated VAT charges. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case the ministry needs to establish whether they should be registered.
Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
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