New VAT law issued by UAE President outlines exemptions

UAE President Sheikh Khalifa bin Zayed Al Nahyan has issued the federal decree-law No. 8 of 2017 for Value-Added Tax (VAT), with the tax set to be implemented from January 2018.

The 5 per cent tax – considered one of the lowest rates in the world – is set to be imposed on the import and supply of goods and services at each stage of production and distribution, official news agency WAM reported.

However, specific goods and services will be exempt from the tax while others will be subjected to a zero rate.

A zero per cent tax will be applied in the following cases –

* Educational services and related goods and services for nurseries, preschool, elementary education, as well as higher educational institutions owned or funded by the federal or local government

* Preventive and basic healthcare services and related goods and services

* First supply of residential buildings within three years of its completion, either through sale or lease in whole or in part. This also includes the first supply of buildings specifically designed to be used by charities and buildings converted from non-residential to residential

* Supply or import of investment-precious metals

* International air travel

* Supply of air, sea and land means of transport used to transport passengers and goods, as well as the supply of related goods and services which are for operating, repairing, maintaining or converting them; the supply of aircrafts or vessels designated for use in the assistance or rescue by air or sea; the supply of goods and services related to the transfer of goods or passengers; or anything consumed by means of transportation or any installations

* When goods and services are being exported outside a VAT-implementing GCC state

The law also states that the following will be exempt from VAT –

* Certain financial services as specified in the executive regulation

* Residential (non-zero-rated) buildings either by sale or lease

* Supply of bare land

* Local passenger transport

The new law is the “bedrock of the UAE’s planned tax system, which was designed to meet the most stringent of standards and best practices”, said Sheikh Hamdan bin Rashid Al Maktoum, deputy ruler of Dubai, UAE Minister of Finance and chairman of the Federal Tax Authority (FTA).

VAT is set to be implemented across the GCC depending on the readiness of each member state between January 1 2018 and January 1 2019 under the common VAT agreement.

“VAT, which is set to be implemented across all GCC countries over the next two years, will bring a new revenue stream for the national economy and GDP. This, in turn, will ensure consistency in the high quality of government services.

“The new tax system will provide extra support for the government to implement the vision of the UAE leadership and build a diversified and productive knowledge economy,” he said.

The imposition of VAT is anticipated to generate approximately Dhs12bn in the first year of introduction in the UAE.

“The tax will have positive results on the economy, far exceeding its 5 per cent rate, given that revenues will be redistributed to development projects that benefit society at large and accelerate progress until the UAE reaches the top of global rankings across all sectors,” added Sheikh Hamdan.

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Other important points under the law –

* A taxable person must submit a tax return to the FTA at the end of each tax period in accordance with the timeframes and procedures specified in the executive regulation.

* Taxable persons are mandated by the law to retain the records relating to capital assets for at least 10 years. A registrant shall issue a tax invoice within 14 days of the date of supply.

* Anyone having a business in the UAE is not permitted to have more than one tax registration number (TRN).

More details can be found at the FTA’s website.

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