How VAT will Impact Businesses in UAE ?

VAT will Impact Businesses in UAE

How VAT will Impact Businesses in UAE ?

According to the authorities, all the six GCC countries will be introduced with the simultaneous value-added taxes (VAT) applicable from January 2018 in different business sectors. The application of VAT has been under consideration for a long time however, it is supposed to be applicable from January 1st 2018, as per the initial announcements, yet the formal statement from the GCC countries is due.

VAT is not new, in fact the concept of GST/VAT was originated in France in 1950 and to date, there are over 160 countries across the globe, where General Sales Tax (GST) and VAT are applied. These countries also include some of the biggest economies like China, European Union and many other Asian countries like Singapore, Sri Lanka, and India etc.

Along these lines, the hottest question in town is how VAT is going to influence the commercial activities and living standard of the inhabitants? Which sectors are to be most influenced? And, Who will be relishing exemptions? We have put together the concise and precise answers to all your questions here. To know, please continue reading.

In January 2017 we wrote about “Taxes are coming to UAE” in case you are interested to read this.

Who Will Be Affected?

Considering UAE, all the businesses in UAE will be affected, as VAT will be impacting the sales of most the products and services. Although some consumption tax reliefs and exemption are anticipated for few business sectors, the majority of them including construction, real estate, insurance, education, automobile, consumer goods will be hit hard. Digging into details, Property and Real Estate Sector would be facing a substantial impact with the 5% increased VAT, as it tends to bring a rational effect on the demand of property, at least for a short-term. In Property and Real Estate Sector, residential properties will be relishing the exemptions on residential rent and subsequent property sale and the first sale will also be zero-rated. However, for all the commercial property 5% VAT will be applicable to the property sales and lease both. Though business would be able to claim for the VAT input paid with-in their rent of commercial activities. The Bare land sale is also exempted from the VAT in UAE.

Construction sector will also be affected and experiencing the increase in overall cost of material labor and building construction. The impact also tends to be short term, until the industry prepares itself and find the cost curtailing procedure and suppliers that provide them at low cost. The education sector is yet questioned with either exemption or zero-rate, whereas consumer electronics sector is anticipated to be hit the hardest whereas grocery sector to be the least influenced.

What Entrepreneurs Need to Do?

The entrepreneurs of UAE can take the lesson from Malaysia which set out an amazing example of VAT application to the rest of the world. Malaysia is the most recent economy which has embraced the VAT in April 2015. The key lesson that we should learn from Malaysia is that business companies that managed to adopt VAT implementations before coming into force and adjusted their business model accordingly are found to be more responsive towards potential issues, managed risks effectively and planned their cash flow and capital expenditures more efficiently.

Thus, all the businessperson in UAE should likewise prepare and revamp their business models, operating systems, and financial structures according to the new tax system. In other words, they are required to undertake proactive measures that can possibly facilitate them in addressing the forthcoming impact in term of deficiencies and increasing cost. In case of exempt businesses, corporate restructuring and reorganization needed to be undertaken immediately. Most importantly, businesspersons are required to immediately integrate VAT into their business stream while ensuring to maintaining accurate track record and documents, in order to demonstrate and submit to the tax authority to validate their compliance.

How Business Setup Consultants Could Help?

We have a highly professional and experienced team that can help you understanding and integrate all the fundamental VAT requirement, implications and consequences. Our team of experts is always on their toes to guide you with their knowledgeable advice.

We are more than happy to serve you anytime, use the message window on the right to leave a message or contact us directly through +971 4 4301245 or by sending us an email at

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