The UAE federal budget partially funded by the oil revenue has suffered a substantial loss in the past 12 months. The plunge of oil prices has urged UAE to review its finances and mull over new ways of increasing revenue. Thus at current the governments evaluates the possibilities of introduction of the VAT tax. Such tax in UAE, as according to the info available by the present date, is planned to be applied to the luxurious consumer goods and to the new cars. The expected VAT tax level is in the range 5 to 10 percent.
Over the course of the past years, several feasibility studies were conducted to test the introduction of VAT on luxury goods. The result was that whereas those with a higher disposable income will have to bear the tax, the low income households will not need to be worried as the impact on them will be least tangible.
The tax would have only limited implication and would not have any effects on companies in UAE as the VAT tax is not planned for companies.
Thus, in the event of planned VAT tax introduction, the UAE would remain the country with the most attractive taxation regime for business and physical persons.
If the UAE VAT tax law would be introduced, its implementation into real life would be within some certain period which, as specials expect, shall be around 2 years.
Currently, the UAE has no taxation of whatever nature except of taxes on the oil industry and the 20% levy on foreign banks in the UAE. Personal tax for UAE residents – zero tax rate.
As mentioned above – in the evet of VAT Tax introduction in UAE – it would have only limited effect on some specific goods and would not have any results on the business.
For UAE international business companies with zero tax regime – introduction of VAT would not result any changes for such firms either.
Apart of the tax-free environment, UAE has a number of other incentives for doing business. Moreover, introduction of some minor taxation would benefit the image of the UAE as the country – currently the absence of VAT is being from time to time criticized by international regulatory authorities.