The rate for VAT has been set at 5per cent and will provide the country with a new source of income that will contribute to the provision of public services and help the government reduce its dependence on oil.
Businesses which provide taxable goods or services with annual revenue of more than Dh375,000 will be required to register for VAT. Businesses with tax¬able supplies below Dh375,000 but more than Dh187,500 will have the option to register for it during the first phase of the scheme's introduction but it will eventually be compulsory. Companies providing health and education services will be able to reclaim VAT from the Government.
The UAE will remain tax-free in many ways even after 1 January 2018 as there is no income tax on salaries. Free zones in the country also offer a tax-free environment, including 100 per cent foreign ownership in free zones.
Businesses engaged in the supply of goods or services subject to VAT will be entitled to reclaim VAT incurred on costs. When engaged in activities exempt from VAT businesses cannot reclaim VAT incurred on costs, VAT will be a cost to the business. VAT is a tax on consumption and is levied on the price charged to the customer. Therefore, it is expected prices will increase by the amount of VAT. However, it is ultimately a matter for suppliers to determine the price of their goods and services. The price will need to take account of VAT.
ILS World said: "The new tax laws and procedures are expected to strengthen the UAE's economic development and enable it to compete with other world economies. Tax is a new concept in the UAE community and it is important all businesses are ready to face the changes."
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Please note: ILS World does not offer tax advice, however, we will be happy to make an appropriate introduction.