Will Taxes in the UAE be Implemented?

Taxes in the UAE

Will Taxes in the UAE be Implemented?

The big question of whether or not taxes will ever be implemented in the UAE will soon be answered. The question now is ‘when’ and not ‘if’ anymore!

As per latest reports, the UAE will start implementing a value added tax (VAT) rate of five percent from January 1 2018; however, corporate and income taxes are not under consideration for the time being.

The UAE’s current tax structure

  1. A corporate income tax of 20 per cent levied on foreign banks in Dubai
  2. A local municipal property tax of 5 percent of the rental value
  3. A 10 percent local hotel tax on hotel services
  4. The GCC’s common external tariff (a general rate of 5 percent, 50 percent on alcohol and 100 percent on tobacco) applied locally
  5. Select fees on government services (applied by the federal and Dubai governments)

What is VAT, how much may be imposed and when?

VAT is a type of consumption tax that the customer pays while purchasing a product.

The rate of this Dubai tax (VAT) rate is likely to be a low rate of 5 percent, in line with the recommendation of the International Monetary Fund (IMF). The IMF has been advising experts on the need to introduce tax in UAE and other GCC countries to strengthen their revenue base in the wake of fluctuating global oil prices.

Will the introduction of VAT escalate the cost of living and doing business in the UAE ?

The good news is that the impact of such a low rate of five percent Dubai tax on corporates and end users may not be huge, quite negligible and only be compliance-related, experts say.

However, businesses will have to take the cash-flow impact of this tax in UAE into their day to day activities – something that those involved in projects with tight margins should consider carefully. The ones that will generally bear the cost are likely to be individuals as businesses may lessen the impact by including some of the tax in Dubai VAT charge into their profit margins.

Is personal income tax on the table too?

It seems like personal tax is not on the Dubai tax agenda at the moment at least, as the introduction of VAT should keep income tax concerns at bay. Plus, it is unlikely that tax in UAE would see VAT and corporate tax introduced simultaneously in the country – as it would pose a major challenge given that the UAE has had no pre-existing taxpayer database.

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