VAT in Dubai likely to be introduced in 2018 - our guide

The government of Dubai has published advice on VAT and the likely implementation of a low rate of VAT in Dubai in 2018. With a series of FAQs on their website, they are looking to clarify their standing on VAT which doesn't appear to be 100% certain, but is pretty close.

So why are they introducing VAT?

VAT (Value Added Tax) is common around the world, but not in the UAE. The Federal and Emirate governments provide public services, paid for by government budgets, and the new VAT will be a new source of income for the government in order to continue providing public services. Equally, the government is looking to reduce its reliance on oil. While Dubai is the least reliant of all the Emirates on oil, the introduction of VAT is another move towards even less reliance upon hydrocarbons. The UAE is also part of the GCC (the Gulf Cooperational Council) and together, the group has been working together on public policy.

When? How? What for?

Again, that word "likely"... which implies that it's not 100% certain, but it is "likely" that VAT will be introduced on 1st January 2018, and that the rate will be 5%. As elsewhere in the world, businesses will be responsible for documenting business income and VAT charges. Registered businesses and traders will need to charge their customers VAT and incur VAT on goods or services they buy from suppliers. The difference between these sums needs to be reclaimed or paid to the government. There may be reliefs on some goods and services, but this hasn't yet been defined. However, the government is set to publish guidelines on how business have to be clear about VAT and what they are charging customers.

What's the impact?

If you meet the as-yet-unspecified minimum annual turnover requirement, then you'll have to register for VAT. And the implication there is that many small businesses won't need to register. Whichever camp your business falls in - if you own one in Dubai - you still have to provide your financial records in order to prove that you are VAT-eligible or not. If you are in the "in" camp, you'll have 18 months after VAT is announced to get your books in order and get ready for VAT. And this means changes to your accounting operations - your bookkeeping and your financial management will need to be modified in order to avoid fines once VAT is introduced. The government doesn't foresee any negative impact on tourism or the economy - indeed, they're portraying this in a positive light as a sign of a maturing economy, which is fair - the move away from the UAE's dependency on oil has to be made early. They will set up education and awareness campaigns throughout the year so that residents and businesses alike can be fully briefed on the changes.

Can I claim it back as a visitor?

Foreign businesses will be allowed to recover VAT incurred when visiting Dubai, yes. Otherwise, it would potentially harm Dubai and the UAE's ability to compete on the world stage, especially when there are countries who do not have VAT systems in place. It also means that UAE businesses remain able to recover their VAT when travelling abroad where rates are often much higher than the mooted 5%.

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