VAT in Dubai
VAT in Dubai
Federal Tax Authority’s (FTA) analysis suggests that applying VAT in Dubai will help it in specific and the UAE in general to strengthen its economy by diversifying revenues away from oil. This will allow the government to fund numerous public services, which is a sign of a maturing economy. Furthermore, as per global best practices, the UAE is exploring other tax options as well.
As in all emirates in the UAE, VAT in Dubai will be implemented on the 1st of January 2018 at a rate of 5%.
VAT in Dubai will be applied to specific products and services; healthcare and educational segments, as well as certain food items will either be exempted from taxation or zero-taxed.
VAT in Dubai and across the UAE is implemented for the purpose of diversifying and increasing revenue of the gross domestic products (GDP), as the revenues from the oil industry have drastically dropped. And since VAT revenues across the UAE are estimated to reach 10-12 billion AED on the first year, they will reduce the reliance on petroleum, boost the economy, and cover further infrastructure development costs.
The most important question regarding this matter is whether your business is capable of surviving this change. The tax-free environment is gone forever, and there has never been a more critical time for businesses and corporations to get their act together and do what the government is doing now: be more competitive, efficient, and effective in conducting its operations and managing its business.
Another essential thing to keep in mind is reporting compliance through preparing and filing VAT tax returns, which are normally filed quarterly or, in certain cases, annually. Once VAT in Dubai is applied, the VAT returns can be submitted online through the official portal of the Federal Tax Authority (FTA).
The UAE government has adjusted all the legal concerns related to VAT efficiently so as to put Dubai and all other emirates across the UAE in line with international standards and alleviate potential pressure on its tax-free environment.
At XB4, we take a closer look at your operations and businesses, and provide you with honest and transparent solutions. We strive to help businesses not only survive, but also grow to grow the economy.
We are prepared to assist you through the change. Our team of experts will walk you through the VAT implementation process step by step through:
- Conducting VAT readiness and capabilities assessment
- Conducting VAT sessions and workshops on awareness and planning
- Reviewing business policies, procedures, and transactions to provide a plan for required amendments and classifications
- Reviewing continuous long-term contracts and proposing VAT-specific amendments and changes
- Undertaking a VAT financial analysis, and advising on its impact on margins and pricing
- Providing and presenting a VAT implementation plan
- Advising and supporting on systems, compliance, and training
We will also make sure your company is not overpaying VAT by offering the necessary planning and assessment at the implementation stage of VAT. It is critical for you as a business owner to fully grasp the impact of VAT on your cost structure, as you may be able to save some of the VAT being charged, and hence manage your cost.
In accordance with the UAE Federal Decree-Law No. (8) of 2017, the following supplies are zero rated:
- Exports of goods and services
- International transport of goods and passengers
- Certain means of transport, such as trains, trams, vessels, and airplanes
- First sale/rent of residential buildings
- Aircraft or vessels designated for rescue and assistance by air or sea
- Certain investment precious metals
- Certain healthcare services and related goods and services
- Certain educational services and related goods and services
Exempt supplies are those that are not taxable for VAT purposes. As a result, the supplier cannot recover any VAT on expenses earned in making those exempt supplies. Exemptions will also be strictly applied as they are an exception to the normal rule that VAT should be charged.
As listed in Article 46 of the Federal Decree-Law no. (8) of 2017 on Value Added Tax, exempt supplies are, but not limited to:
- Financial services including life insurance and reinsurance of life insurance as well as financial services that are not conducted for an explicit fee, discount, commission, rebate or similar type of consideration
- Residential buildings, other than the residential buildings which are specifically zero-rated
- Bare land
- Local passenger transport
You do not have to register for VAT if you only deal with exempt supplies. You also cannot recover tax incurred on business purchases; for example, owners of properties who rent them for residential purposes.
VAT: What Will Change?
Applying VAT in Dubai, which has been tax-free since anyone can remember, is a huge step. It holds every person responsible for understanding what will and what will not change one VAT is implemented.
- Car purchase and rent prices
- Fashion items (clothes, shoes, accessories, bags, etc.)
- Food and beverage
- Water and electricity bills
- Ticket prices (cinema, theme park, concerts, etc.)
- School uniforms and transport
- Financial services and fees
- Hotel, dining, voucher prices
What Will Not…
- Tuition fees
- Medical fees
- Medicine prices
- Public transport
- Airline tickets
- Visa charges
- Salaries and bonuses
The executive regulations state that in order to be zero-rated, the supply of educational services must be provided in accordance with “the curriculum recognized by the Ministry of Education, Ministry of Higher Education and Scientific Research, or the competent government entity regulating the education sector in the emirate in which the course is delivered”. If an educational entity supplies education that is not in accordance with a recognized curriculum, it must charge VAT at the standard rate (i.e. 5%) on those supplies.
As for institutions of higher education, such as universities, the institution must either be “owned by the Federal or local government or receive more than 50 per cent of its annual funding directly from the Federal or local government.”
You may wonder about education-related goods and services. Well, if a qualifying educational institution supplies other goods and services that are directly related to education, given that it is zero-rated, they qualify for zero-rating as well. For example, books supplied by educational institutions that are related to the taught curriculum also qualify for zero-rating.
There are certain exceptions to zero-rating, such as:
- Goods and services provided by a qualifying educational institution to people who are not registered in it
- Any goods provided by a qualifying educational institution that are consumed by the students
- Required uniforms or any other clothing worn by students who are enrolled in a qualifying educational institution
- Electronic devices used in educational services
- Food and beverages served at a qualifying educational institution including items from vending machines
- Field trips, unless directly related to the approved curriculum
- Extracurricular activities provided for an additional fee
- Memberships in student organizations
Basic healthcare services and related goods and services will not be subject to VAT. However, other healthcare services such as cosmetic surgery, traditional and alternative medicines and therapies, herbal medicines, cosmetics, supplements, rental of clinics, room and food for non-patients, car parking fees, and televisions rented to patients are subject to VAT. In these cases, input VAT will be recoverable.
Financial services and life insurance
Islamic banking will be treated in the same way as standard banking, and certain financial services will be exempt from VAT, such as loans, mortgages, and life insurance products.
Local and international transportation
Although VAT will be applied to the price of fuel, local passenger transport, such as taxis, buses, and the metro will be either exempt or zero-rated. International transport, whether by air, sea, or road, will also be free of VAT.
Residential properties within three years of completion, for both rental or purchase, will be zero-rated, while subsequent residential leases from a ‘first time’ purchaser will be exempt from VAT. The tax will, however, be payable at the standard rate on all commercial properties, both for rental and purchase.
Tips on how to adapt to VAT
VAT is inevitable, but what you can do is balance the books in order to ease its impact.
Shop in bulk
Head to the stores and stock up on household essentials that will be soon be taxable, such as cleaning products, toiletries, school supplies, and pet food.
Take advantage of offers
To mitigate the effect of VAT on your daily life, you can buy the 2018 edition of restaurant offer books or apps before the end of this year.
Furnish and refurbish before January 1st
If you are planning to have a home makeover, do it sooner than later. These services will be taxable starting the new year. If the work can be done before then, you will save yourself the extra five per cent.
Book your 2018 hotel stays now
Starting January 2018, hotel room costs will be subject to VAT. So if you are staying anywhere across the UAE beginning of 2018 or have family or friends visiting soon, you may want to book and pay in advance.
Plan the professional services you need
If you intend to employ any professional service, whether personally or through your business, you can save 5% by doing this sooner rather than later.
Buy from small businesses
Since only businesses with an income of Dhs 375,000 a year will be obliged to register for VAT, many small and independent businesses will not need to add VAT to their prices. Therefore, you can support independent traders without having to pay any extra.
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