The United Arab Emirates is a federation of seven emirates, with autonomous emirate and local governments. UAE does not have any federal income tax. An income tax decree has been enacted by each Emirate, but in practice, the enforcement of these decrees is restricted to foreign banks and to oil companies.
The UAE government is planning to implement value-added tax (VAT) in the country from January 1, 2018, at a standard rate of 5%
Most of the revenues have been generated from oil sales to other countries. UAE is looking to diversify from this source and other hydrocarbons and hence introducing other forms of revenue such as VAT
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500. Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
Zero-Rated Items of VAT
VAT will be charged at 0% in respect of the following main categories of supplies
• Exports of goods and services to outside the GCC;
• International transportation, and related supplies;
• Supplies of certain sea, air, and land means of transportation (such as aircraft and ships);
• Certain investment grade precious metals (e.g. gold, silver, 99% purity);
• Newly constructed residential properties, that are supplied for the first time within 3 years of their construction ;
• Supply of certain education services, and supply of relevant goods and services;
• Supply of certain Healthcare services, and supply of relevant goods and services.
Exemptions of VAT
The following categories of supplies will be exempt from VAT
• The supply of some financial services (clarified in VAT legislation)
• Residential properties
• Bare land
• Local passenger transport.