It has been more than a year since the UAE launched Value Added Tax (VAT) to some products and services at a standard of 5%. The “new” taxation regime aims to diversify the country’s revenue in context to the sharp decline of oil prices in the Middle East.
The question is, will everything be taxed?
After the implementation of the tax framework in the country, the UAE will remain tax-free in many ways. Residents and investors can still enjoy zero tax on salaries as well as free zones areas also offer UAE tax-free environment including 100% foreign ownership.
For a country with a very little taxation, Dubai is still a tax haven in UAE. Products such as alcoholic drinks, cigarettes, soft drinks, and other products that are deemed to be harmful to health are imposed with a standard VAT rate. Services such as insurance, education, and training are under a zero-taxation system in UAE. Therefore, VAT is only levied on goods and commodities that do not staple amongst the community.
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The Impact of VAT on UAE Business
Investors and entrepreneurs who want to start a business in Dubai raised a bit of a concern for a big change in taxation in the UAE. However, the new regulation states that only those startup companies should register voluntarily for VAT if the value of taxable supplies exceeds Dhs 187,500. These registration requirements vary if the business is in mainland or free zone companies.
UAE Tax-Free Environment: Yes or No?
To simplify, zero taxation system in UAE no longer applies to all products and services generated inside the country. However, it is stipulated in the UAE’s taxation framework on which products and services will fall under the taxed category – zero rate or exempt rate.
Zero Rate
Tax haven in UAE includes zero-rate exports of goods and services to outside the GCC. Businesses in the UAE such as those in education, healthcare, medical equipment, supplies for commercial aircraft, and other forms of public transportation are zero tax. Also, international transport services for both passengers and its products, high-grade metals, newly developed or converted residential properties, natural gas, and crude oil are all zero rate as per the UAE’s taxation guidelines.
Goods and services at the zero rate are goods that are still VAT taxable, but the rate of VAT is 0%. However, businesses are required to record any zero-rated supplies in the VAT account for tax return report.
In effect, the UAE tax-free environment will only apply to those businesses that generate products and services that fall under zero-rate VAT.
Exempt Rate
VAT is not imposed on exempt products and services. Therefore, a supplier cannot recover any VAT on expenses incurred in making those exempt items. Exemptions are strictly applied as these products and services are exempted to the normal VAT charge in the UAE.
Financial services, residential apartments, plots, local public transport services are all included in the exempt rate category. https://www.shuraatax.com/
UAE VAT: Upsides VS Downsides
Advantages
- To streamline revenues to the UAE government to stabilise the economy and create a positive effect on businesses in the future.
- To continuously build world-class infrastructure and increase the UAE’s business efficiency.
- The introduction of VAT in the UAE opens new opportunities for businesses including those specialise in VAT terms.
Disadvantages
- Existing companies in the UAE need to adjust to the new taxation system as it affects the business structure and cash flow.
- VAT adds costs to products and services as business entities need to comply with a new law.
- Companies are legally required to prepare and keep track of business records especially when the government checks if you are getting things properly.
If you are still thinking about how the VAT system affects a business or how a company can properly operate under the regulations, seek the advice of a consultant. It is worth dealing with a reliable business management consultancy to further discuss taxation in the UAE.
To know more about your company’s VAT responsibilities, Shuraa Business Setup is happy to help. Contact us today for a free consultation.
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