Corporations in UAE may be taxed soon. VAT to be introduced too

19th July, 2015: In a major shift in policy, the UAE which has been all along promoted as a low-tax environment, is preparing to introduce taxes both direct and indirect. This will be mainly tax on corporations and value-added tax (VAT) on consumption of goods and services.

Quite obviously, this is to bolster the revenues for the UAE. Particularly after the steep fall in  oil prices recently, the Gulf states  like UAE need to seek out new ways of raising revenue. This year for the first time, UAE may post a consolidated fiscal deficit since the impact of the financial crises of 2008-09. 

 

It is reported that that the draft tax laws to introduce corporate tax and VAT  are in an advanced stage of completion. Younis Haji al-Khouri, under-secretary at the ministry is reported to have stated “The draft of the corporate tax law and the value-added tax law has been discussed with the local and federal governments,”.

Though the authorities are still evaluating the socio-economic impact of the change, the drafting was expected to be finished “very soon, within the third quarter of this year”.

One issue which has impeded VAT introduction in UAE is if adjacent countries do not adopt it, UAE becomes uncompetitive and will incentivise cross-border smuggling. Neighbouring countries are discussing plans for VAT but do not have a firm timetable.

The details of the progress made in this regard are announced through the Ministry of Finance Report available here : http://www.mof.gov.ae/En/Documents/MOFREPORT2014%20En.pdf