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What do UAE businesses need to know about the new VAT change?

Posted on June 2, 2016 10:00 am;

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by Aimee Mhaolcraoibhe


The UAE has decided to introduce a 5% VAT on all business transactions from the 1 st January 2018.

This is in participation with other GCC countries, who have all decided to implement this new rate of

VAT. GCC countries will have a full year to implement the tax but the UAE plans to take the early

initiative and introduce the rate at the outset of that time frame.


There will be a list of 100 items that will be exempted from the new VAT charges including bicycles,

social services, education, food and health services. While critics have said that the introduction of

this 5% rate will add to the overall cost of living the belief overall and the government policy on the

matter is that it will not do so as the daily necessities will not be included in this tax.


The reason implementation of the 5% rate is postponed until the 1 st January 2018 is so that

companies and businesses have the time to implement the necessary changes prior to inception.

This will include changing the program that operates the cash registers to allow for the inclusion of

this rate of the required goods and services as well as creating proper bookkeeping procedures for

tracking all tax which is collected. Having an accountant in place who is familiar with filing this type

of tax form will be on the cards for businesses in the UAE, as ongoing compliance with this new law

will be a necessity for all businesses operating within the jurisdiction.


While there is no direct affect foreseen on the cost of living, the cost of doing business is set to get

more expensive by exactly 5% at all times, but at the outset there is set to be the additional cost of

upgrading systems to include tax on every calculation as well as additional cost in knowledge

management, i.e. training all workers to understand how the new VAT process will work.


Suppliers will be hit hard by the changes as competition to provide a low price in compensation for

the addition of VAT will become commonplace. It is likely that there will be shifts in business with

some finding it too hard to compete and larger, more established companies being able to continue

earning a profit while implementing the VAT through more connected means. The fact is that each

business will have to pay to have their systems reworked to include this new legislative tax, which

means that companies with several locations will benefit by only paying once and copying the

information whereas smaller companies will have to pay the same amount. This is set to be the least

worry for businesses, as the idea of VAT is completely new within the UAE. The need for professional

accounting advice for businesses in filing proper and consistent taxes will become a priority for all

businesses operating in the country.


Larger companies may have to actually hire new workers to ensure the ongoing compliance with

VAT whereas smaller businesses are likely to outsource this requirement to a professional

accounting firm. Regardless of the choice, the end result is that the implementation of VAT in the

UAE will result in extra work for businesses over the next 2 years in reaching compliance, and extra

costs involved in doing so.

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