VAT rate set at 3%

Dubai Customs has recommended a rate of three per cent for the value added tax (VAT) the UAE would introduce next year as part of a Gulf initiative.
A final decision on the rate and timing of VAT's implementation will be taken by the federal government.

This will mark the country's exit from a perceived 'tax-free' haven to a tax regime.

Although the country is yet to formally launch direct tax, its residents have been paying indirect taxes in the form of fees, surcharges, and road tolls, etc.

Dubai Customs director-general Ahmad Butti Ahmad said the UAE is likely to be the first country of the Gulf Cooperation Council to introduce the tax on goods and services.

"VAT makes sense for Gulf states diversifying into sectors like tourism, hospitality and financial services," Ahmad said at a media briefing on Sunday night, and described it as "the best tax system" for boosting the UAE economy.

/Gulf News/

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Dubai Customs Illustrates the Main Aspects of VAT

The date for the switch to VAT from the Customs Duty is to be determined by the federal government

In a media briefing session held last night, Dubai Customs, the organization that has been commissioned to prepare a study about the VAT system, illustrated the main aspects of the new tax system in order to raise the awareness amongst key stakeholders and the public at large.

In this briefing, held at the Raffles Hotel, Dubai and attended by a large number of local, regional and international media representatives, Ahmad Butti Ahmad, Director General of Dubai Customs confirmed that draft laws have already been submitted for approval to the UAE’s federal authorities and are awaiting approval. He also announced that the report on the level of Value Added Tax to be used in the UAE recommended a 3% threshold, and that the final decision is to be taken by UAE’s federal authorities.

Butti said that all rumors about the switching date are not more than speculations, and that UAE’s federal authorities have not determined a certain date yet. Butti believes that this date would be perfectly timed and aligned with UAE’s comprehensive economic strategy.

“The revenues of the new VAT system would match the customs duties which would be canceled when the new system is implemented. Therefore, the new VAT system would not have any negative effect on the inflation rates in UAE.” Butti said.

Answering a question about the implementation of VAT in other GCC countries, Butti said that this implementation depends on their readiness. However, he believes that all GCC countries would implement the VAT system eventually. Butti also confirmed the readiness of Dubai Customs to implement this system as soon as it’s approved, because Dubai has already initiated a proper methodology in 2006 to implement VAT.

“VAT system is the best taxation system in the world, and by being highly transparent and accurate, this system would bring a lot of benefits to the UAE. This system would not have any negative effect on foreign investments because foreigners are used to such taxation systems and they prefer to operate under the umbrella of this system instead of being subject to unclear taxes.” Butti added.

Butti said that VAT is already in use in 145 countries around the world and that over the past years it was proven that VAT is the most transparent and fair system in the world.

Butti referred to Mohsen Khan’s, IMF Regional Director in the Middle East, remarks in a press conference that was held lately. Khan said that VAT is crucial for diversifying the UAE’s economy into new sectors such as: Hospitality, Tourism, Financial services and transportation.

Khan was urging UAE to be the first GCC country to implement the VAT system, because Dubai has reached major milestones in preparing the platform for the new system.

/© 2008 Al Bawaba/

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The introduction of a value added tax system would ''strengthen the economy" and "increase inflation by 2%''

Dubai Customs said on Saturday the introduction of a value added tax system in the UAE and wider GCC would strengthen the economy and raise standards of living across the region

Comments by an International Monetary Fund (IMF) official predicting VAT would increase inflation by 2% contradicted an IMF report which encouraged speedy implementation of the system to boost the economy, an official said.

A statement by Mohsin Khan was “based on personal speculation”, and did “not reflect the report’s advice,” said Abdulrahman Al-Saleh, an executive director at Dubai Customs.

Khan, director of the IMF’s Middle East and Central Asia department, said recently that “implementing VAT now is overwhelmed by many problems, as the service-based economy needs some kind of multi-sources income.”

The IMF, however, presented the tax in a positive light, Al-Saleh said, quoting it as saying: “In all countries adopting the VAT, its impact on retail prices is a source of concern for the politicians and the public. The evidence, however, suggests that there is no reason to expect that VAT would be inflationary, although the VAT may have a one-time effect on the general price level and may lead to a change in relative prices.”

“It is well-known globally that implementing VAT in many countries has significantly contributed in boosting the economy’s sustainability, as VAT is considered the ideal tax for already strong economies,” Al-Saleh said.

“While UAE seeks to strengthen and diversify its economy, the country will not be an exceptional case in this regard.”

According to Dubai Customs, the UAE will introduce VAT some time in the next year, with all GCC countries implementing the system within five years.
/Arabian Business/

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''In four to five years VAT should be in all GCC countries,"

All GCC countries will have value added tax (VAT) within five years, a senior Dubai Customs official said on Thursday.

Speaking to local radio station Dubai Eye, Dubai Customs Executive Director Abdul Rahman Al-Saleh also said the UAE was expected to introduce the tax sometime next year, without being any more specific.

"It could be that if we or any other GCC country is ready, they can start [to introduce VAT], but the target is that in four to five years VAT should be in all GCC countries," Al-Saleh said.

"We [the UAE] envisage the implementation sometime in 2009 but I cannot tell you the month yet."

Al-Saleh told Dubai Eye it was inevitable VAT would be introduced, stating it was only a “matter of time”.

He said the exact date of its introduction would be announced by the federal government, but did not know when that would be.

The tax, which will replace customs duties to be phased out under free trade agreements, is likely to be set at a flat rate of between 3% and 5% and would be applied to all goods and services.

Small businesses with revenues under $1 million will be exempt from the tax, according to a statement by Dubai Customs on Tuesday, and companies within the health and education sectors could also be exempt, Al-Saleh said.

News of the introduction of VAT has raised fears that the UAE will become a less attractive place to work and do business.

Al-Saleh denied this, stating that VAT was replacing customs duties and was being introduced at a very low rate.

He also said that the introduction would not at to inflation, which likely accelerated to a 20-year peak of 11.4% last year and will rise slightly to 11.8% this year, according to a recent poll of analysts.

“[I have] no concern that the UAE will be perceived as less attractive for doing business, we have been looking at inflation and our conclusion is that VAT will not cause any inflation," Al-Saleh said.

"The VAT is being introduced to replace customs duties. We are targeting a very low rate of tax compared to an average of 20% in Europe.

"This is the best time to introduce VAT because the government can introduce it at very low rate because of its oil income."

Al-Saleh said on Tuesday at trade expo Arabian Travel Market (ATM) that the UAE would have the infrastructure in place for a VAT system by the end of this year.

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Tax on goods by end of the year

The UAE will be ready to introduce a system of value added tax (VAT) by the end of the year.

Abdul Rahman al Saleh, the executive director of Dubai Customs, said the “infrastructure” for an Emirates-wide taxation system would be put in place between October and December.

Dubai Customs was commissioned by the Government two years ago to look into a potential VAT and is finalising the strategy. If implemented, it would be the first time VAT, which is applied to the sale of goods and services and not income, has been imposed in a GCC nation.

However, a government source said although the mechanics would be in place, it was “very unlikely” that VAT would be introduced this year because Federal approval and GCC co-operation, on several related issues, would be required.

VAT would be introduced to replace customs duties, which the UAE must phase out as part of the free trade agreements (FTAs) it is signing with a number of major trading partners, Mr Saleh said.

The government source, who declined to be identified, said a GCC-wide agreement on these FTAs is still some way off.

Mr Saleh told a seminar at the Arabian Travel Market in Dubai that VAT was likely to be set at a flat rate of between three and five per cent. It would be applied to all goods and services.

The introduction of VAT is likely to be unpopular with Emiratis, residents and businesses, who have enjoyed years of tax-free conditions.

If the UAE were to introduce it before other members of the GCC, analysts warned the tax could drive business away from the UAE.

Although the proposed three to five per cent rate is lower than in many other countries – the rate in the UK, for instance, is 17.5 per cent – residents are likely to oppose any measure that could increase already rising food and accommodation costs.

But Mr Saleh said prices were unlikely to climb because of the removal of customs duties.

“I don’t expect a negative reaction from the public because the providers of the services and the goods will take care of this [VAT expense],” he said.

“They would not be paying customs duty so they should not need to increase their prices.” Mr Saleh said if Federal authorities decided to press ahead with VAT, there would be a provision for tourists to claim back the tax they paid on purchases over a set amount. Small businesses with revenue of less than a specific annual figure – expected to be about Dh3.67 million (US$1m) – would also be exempt, he added.

Customs officials have said the VAT would be necessary to replace the “lost revenue” from the removal of customs duties. The funds would be required for investment in health, education and public infrastructure, they said.

The International Monetary Fund is backing the initiative.

Mr Saleh said Dubai Customs had been working for the past two years to develop a VAT system that could be applied across the Emirates.

He said research was conducted in countries such as the UK and New Zealand, many of which use different forms of the taxation system. While some countries apply a low flat rate to all goods and services, others tax certain goods heavily but exempt others.

“We will put in a low rate and have direct aids to the right people, rather than having exemptions. Products and services in certain areas, such as education and health, can be looked at by the Government.” /The National/

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Dubai Customs Clarifies Information on the second phase of VAT

After the false information circulating among several media outlets regarding the Value Added Tax (VAT) Study Project in the UAE which mislead the public opinion, Dubai Customs Clarifies the following: Dubai Customs launched last November the second phase of the Value Added Tax (VAT) Study Project, in order to apply on time the proposed system for the tax.

The second phase includes the transition from the study of the best global practices to the implementation stage of the project.

This phase will include also the completion of the legal aspects, and the start of the groundwork process of its infrastructure, especially the collection of taxes.

The second phase also includes the training of the involved personnel in the UAE, as well as the preparations for a major media campaign aiming at raising the awareness among taxpayers and consumers.

Entering the second phase of the VAT Project, does not mean that the implementation of the tax will be soon, because the process may take one year or more, due to the need to apply it in a professional manner and to meet, or even surpass the international standards.
The studies conducted by Dubai Customs took into consideration the best global best practices in this field, to make sure that the application of the new system would not cause any burdens on traders and investors.

The VAT would be a substitute for customs duties which are expected to be abolished when the Free Trade agreements with major trading partners of the United Arab Emirates are implemented.

Dubai Customs invites all media outlets to contact the Media and Public Relations section at Dubai Customs to enquire and get the correct information on the Value Added Tax (VAT) Study Project . (VAM)

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VAT at least a year away

Dubai is unlikely to introduce value added tax (VAT) for at least another year, Dubai Customs said on Monday, clarifying what is described as "false information" that the government was planning impose the tax in the near future.

Dubai Customs confirmed a study on VAT had now entered its second phase, but stressed this did not mean its introduction was imminent.
"Entering the second phase of the VAT project does not mean that the implementation of the tax will be soon, because the process may take one year or more," it said in a statement.
Dubai Customs reiterated that the introduction of VAT would not hit consumers or the economy.

Last month a Dubai Customs official told UAE daily Gulf News that the UAE was close to formulating a strategy that would see VAT added to goods and services within a year.
The head of the taskforce studying this issue has previously said that when VAT is introduced it is unlikely to exceed 5%.
The tax will replace customs duties and may also lead to the cancellation of the 15% municipality tax currently charged on hotel and restaurant bills. Source

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UAE could impose broad taxes within a year

The UAE federal government is close to formulating a strategy that will see value added tax added to goods and services in the country.
Research is currently in its advanced stages into models for VAT that might hit UAE residents within a year, according to a government official interviewed by daily newspaper Gulf News.
"We are currently carrying out various studies on the implementation of VAT in a year's time," Abdul Rahman Al Saleh, executive director for Corporate Affairs at Dubai Customs, told the paper.
A new federal authority is expected to be formed that will be responsible for imposing VAT rules and overseeing its collection, although it is not clear whether the tax will be added at a retail store level or as some form of additional import duty.
"We are weighing various options. A new federal authority could be formed to oversee the VAT collection process or the customs could collect at entry," Al Saleh told GN.
Al Saleh hinted that VAT would not be imposed on all goods and services. Small companies will be exempt, he said.
That suggests that large supermarkets such as Spinneys and Carrefour would have to impose VAT on goods while corner grocery stores would slip through the net. Source

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Dubai Customs launches second phase of VAT

Dubai Customs launched the second phase of the Value Added Tax (VAT) programme in preparation for its implementation.

The Dubai Customs was studying the project and its feasibility for quite some time, and now it will move ahead towards the implementation of the tax system after finalisation of its legal framework and preparation of infrastructure needed to levy the tax. Source

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IMF backs UAE tax plan

Preparations for the introduction of VAT across the UAE have been backed by the International Monetary Fund (IMF).
A recent IMF report entitled Article IV Consultation with the UAE, said the IMF "welcomed the preparations to introduce a Value Added Tax system at the federal level."
Despite criticism a number of analysts believe the impact of an indirect tax would not be as dramatic as many believe.

"The UAE is strong enough to absorb an indirect tax," said Milan Sallaba, director and office head of Oliver Wyman - global strategy and operations consultants. "If you look in general there are already a lot of hidden taxes in the UAE, such as housing fees for rentals and Salik. VAT would be but another tax.
"VAT is indirect tax, which in my strong opinion is a much preferred tax to a direct taxation of salary or property tax," he continued.
"The overall impact will depend on what the other economies in the Gulf are doing. If the UAE were to introduce VAT and Qatar and Bahrain, didn't follow suit, for example, the country's relative competitiveness would suffer. At the moment the UAE is considered to have the upper hand."
David Butter from the Economist Intelligence Unit, who specialises in the Middle East, told Arabian Business that the IMF's support of VAT wasn't surprising. "Generally the IMF would recommend VAT as an effective means to provide that sort of access funding for a government. They have been encouraging a number of Gulf governments to look at VAT for some time now following the drop in oil prices a few years ago, although not necessarily in the UAE.
"The main argument behind it is to provide a different set of instruments for fiscal policy so as to lessen direct dependence on oil revenue for government activities. From a government's point of view it is an efficient way to get hold of fiscal receipts," he added.
The report also revealed that a National Bureau of Statistics (NBS) and a Federal Credit Bureau would be introduced by the end of this year.
"Efforts to address the weakness of economic statistics at the national level have intensified. Work is underway to improve consumer price data and to establish the NBS by the end of 2007," the report said.
The introduction would be followed by several statistic surveys which are currently being prepared. Planned studies include one on household income and expenditure in line with the UAE's efforts to formulate a consumer price index (CPI) to measure real inflation, according to the report.
The IFM report also agreed that the current dirham peg to the dollar has served the UAE well: "The exchange rate of the dirham is in line with fundamentals. Further structural reforms would help to sustain the UAE's competitiveness."
The commitment of the UAE authorities to working closely with other GCC member countries to reach a consensus on the appropriate future exchange rate regime was also noted. Source

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A high cost of living or the new cost of high living?

In days gone by, expatriates came to the Middle East on a hardship posting; high wages, low spending - there weren't many shops in the desert - and very few ‘recognisable' pastimes to indulge in. In 2007, you can walk into any hotel or shopping mall and see the best of the West, better. Despite this decrease in ‘hardship' employees still don't pay income tax, enjoy many perks that were either unaffordable or unheard of in their native countries, and in some cases appreciate much better weather as well.

So, as companies are faced with continued increases in the cost of living for their staff, what is the answer that will help them net the expatriates they need to, and keep people motivated in moving to Dubai? There are three points that spring immediately to mind.

Firstly, low annual increases in wages are not going to be enough to keep employees, given the inflationary and fast-changing nature of the local economy. As Dubai becomes more and more of a cosmopolitan city, costs will increase. The city must grow, pay will go up accordingly, this is basic economics. Most people move to Dubai for the increased ‘bottom line' wages, bankable after all outgoings have been covered; if this equation changes too much, people with a choice will simply return to their home countries.Second, landlords must be prepared to accept changing market conditions. It is undoubtedly true that the rental market for accommodation in Dubai has soared in the last five years, and despite the best efforts of the government to cap the annual increases, landlords can and do find ways around these limits. However, with the massive number of units being delivered in the next few years, this will begin to even out the supply side. Landlords now need to be more realistic in their long-term budgeting. Most now accept only one or two cheques compared to the four or five it used to be. Rent is the single biggest concern for Joe public, and the landlords are part of the potential solution.Having said this, education and healthcare are also huge concerns for the man on the street. As the costs of schooling are rocketing, the new norm for overall employee packages is to incorporate ‘family' costs in a more defined way, even a gym membership is a part that must be considered these days. Last year the launch of companies like du, and the influx of companies to the DIFC were some of the big ticket items that caused a stir in the market, and increased demand across the board in all these areas. DIFC continues to have an impact, and as Studio City, Dubai World Central, and other huge projects rise out of the sand we will see continued demand, keeping the rental equation stable.Thirdly, people must be allowed to get onto the property ladder earlier, to avoid the rental black hole. This is the most important point, and banks and financial institutions are the ones who must provide the answers.Last year 800 people a day moved to Dubai. That's 800 people who are forced to rent because the banks need salary certificates and ‘x' month's payment history before they will even consider lending to an individual, no matter what their status was in another country. The new credit bureau should be the first step down this road. Innovative methods of assessing and lending must be part of the banking sector's response to this need. Newcomers to Dubai would then potentially be able to buy as they move, avoiding the rental dilemma, increasing their commitment to remaining in Dubai, and building up their equity.On a macro level perhaps stopping the importation of inflation linked to the dollar would help here; how long before this is possible though is another question entirely.

by Rashid AW Galadari - Chairman of Galadari Investment Office (GIO). Source

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DEAC discusses labour issues and VAT

The Dubai Economic Affairs Council, DEAC, recently met to discuss a variety of issues related to labour and VAT (value-added tax).The meeting, presided over by the Council's Chairman, Juma Al Majid, was attended by Minister of Labour, Dr. Ali bin Abdullah Al Ka'abi, the Minister of State for Financial and Industrial Affairs, Dr. Mohammed Khalfan bin Kharbash, who is also the Deputy Chairman of the DEAC, and members of the DEAC representing various business and economic institutions.In his opening remarks, the Council Chairman thanked the Labour Minister for his collaboration and that of his officials with various economic interests, as part of the Ministry's strategy to create a real partnership with the business sector.Briefing the meeting, the Minister pledged that his Ministry will always be at the service of society as a whole, and the business sector, in particular, adding that the continuing dialogue between the Ministry and businessmen was the fruit of the good spirit of collaboration that exists on both sides Praising the Council and the Dubai Chamber of Commerce and Industry for the effort put b y them into the production of a report on the draft labour law, Al Ka'abi said that it was important that there should be a discussion of the law by a joint committee of the Ministry and Dubai economic institutions, so as to reach a collective consensus on this and other issues of importance to all stakeholders. The draft law should be completed by the end of this year, he said The Minister also explained current and future policies of his Ministry which, he said, were designed to create a better climate for labour in the country, in line with current economic development. The success so far achieved, he added, was the result of the wise directives of H.H.Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai. He also praised Sheikh Mohammed for his decision to grant an amnesty to violators of the labour law, provided they rectify their status within a three month period The Minister said that the UAE will continue to promulgate labour laws to match the latest developments in the various sectors, adding that his ministry will also coordinate with the private sector to find solutions to existing labour problems He said plans were at an advanced stage to link the Ministry with the Naturalisation and Residency Department to enable the latter to issue employment visas without having to refer to the Ministry. The Ministry will also soon open offices at airports to facilitate the cancellation of visas and residence permits for departing workers, he added The DEAC also met with a Dubai Customs team, led by its director general, Ahmed Butti, and reviewed a draft of a law to introduce the VAT and the justification for this, which was attributed to discussions with a number of foreign countries on Free Trade Agreement.Butti said that VAT is now in operation in over 140 countries and added that, if introduced in the UAE, it would meet the political objective of making the UAE an international hub for business and financial services, while maintaining the country's unique features of competitiveness.The DEAC also discussed other issues, including the protection of local agents and the latest developments on the commercial law bill. Source

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UAE, Bulgaria to sign agreement on avoidance of double taxation

The UAE and Bulgaria will sign an agreement on avoidance of double taxation during a visit by a senior UAE economic official.Dr. Mohammed Khalfan bin Kharbash, Minister of State for Financial and Industrial Affairs, will fly on Monday to Bulgaria on a two-day state visit during which he will sign the agreement with the Bulgarian finance minister. When inked, the agreement will take to 45 the total number of agreements signed by the Ministry of Finance and Industry on avoidance of double taxation. Source

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VAT a dilemma

Is an open-minded policy set out by Maktoum bin Hasher - who came to rule in 1894, and is an ancestor of today's ruler of Dubai - about to come to an end?Sheikh Maktoum did something simple but extraordinary. It was something that, arguably, foreshadowed the booming economy of the UAE today.He abolished taxes. In the late 19th century, it was ruled that almost half the men who worked in Dubai's pearling industry would not pay a dirham - or rather, back then, an Indian rupee - to the government.

Dubai's population exploded. Wealth from pearling flooded into town, with more people working in the industry than in any other Trucial state, and it didn't even matter that they provided just half the income as those in, say, neighbouring Abu Dhabi. The Persians weren't too happy, needless to say. But a business model was born, and, a few years later, commercial taxes were abolished altogether.

Fast-forward 100 years. Dubai has a booming population, a healthy if fledgling international business environment, and no taxes. How history repeats itself.But this could be about to change. The UAE looks set to introduce a value added tax (VAT) on goods. Everyone - from a national to an immigrant worker - will pay a certain amount to the government, probably about 5%, on everything they buy.

A move towards some form of indirect taxation is likely to be replicated in most of the Gulf countries, too.The IMF's Mohsin Khan said earlier this week that "service driven economies such as Dubai and Qatar will be the first to implement VAT, with Dubai already having made significant progress. Taxation is certainly a politically sensitive subject in the Gulf. However, a sales tax is unlikely to attract as much opposition as an income tax." So, hopefully at least, Maktoum bin Hasher's legacy will live on in regard to income tax: the introduction of which would severely damage the economy.However, the introduction of VAT also has the potential to hit the economy hard. Inflation is a serious problem in the region, with the cost of rent and (in Saudi Arabia, especially) certain foodstuffs, soaring. In the UAE, inflation is estimated at above 10%, but is thought to be much higher in booming Dubai. The evolving tax laws must take this into account. The argument is that the introduction of VAT will not hit inflation because customs duty will be abolished at the same time, as the GCC states enter various free trade agreements with other countries.

According to the UAE's Abdul Rahman Al Saleh - the head of the taskforce studying this issue - back in December, the introduction of VAT won't hit consumers or the economy because of this. He also said that the 15% municipality tax - currently charged on hotel and restaurant bills - will be cancelled when VAT is introduced. But the GCC governments should consider exempting certain goods - primarily, essentials such as food and clothes - from the new tax. Otherwise the cost of living could soar to damaging levels. Also, any increase in consumer prices should be carefully controlled. Even if the abolition of customs duty does offset the introduction of VAT, prices have a habit of creeping up when big changes like this are implemented. Witness the introduction of the euro in several countries in the West, which was seen as an opportunity to increase, or at least round up, prices. Source

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UAE nears introduction of VAT

The UAE is moving closer to the introduction of a value added tax (VAT), Gulf News reports today.
IMF director for the Middle East and Central Asia Mohsin Khan told the newspaper that most Gulf countries are considering some form of indirect taxation. The Gulf states "are moving towards the introduction of VAT, however, the implementation of it will happen in phases. Service driven economies such as Dubai and Qatar will be the first to implement VAT, with Dubai already having made significant progress,” he said.
Khan said VAT makes economic sense for Gulf countries that are diversifying into sectors including tourism, hospitality and financial services. "Taxation is certainly a politically sensitive subject in the Gulf. However, a sales tax is unlikely to attract as much opposition as an income tax." Source

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