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25 February 2024

UAE confirms no income tax yet, but 5% VAT is coming

By Vicky Kapur

The UAE has announced the official date of implementing a 5 per cent VAT rate.

“The percentage will be 5 per cent,” Obaid Humaid Al Tayer, UAE Minister of State for Financial Affairs, told reporters on Wednesday after a joint press conference with Christine Lagarde, Managing Director of the International Monetary Fund (IMF), in Dubai.

“As per the GCC Supreme Council resolution, VAT [in the UAE] will be implemented as of January 1, 2018,” he said.

Is January 1, 2018, final for all GCC countries?

Al Tayer noted that the framework agreement on the implementation of VAT across the GCC is expected to be signed off in June, 2016.

“Other countries can implement [at the same time] or take a later date of implementation, of January 1, 2019,” Al Tayer said.

Which means that while the UAE is keen on 2018 implementation, it is possible that some other GCC peers implement it at a later date (no longer than a year later, though).

The UAE had, earlier this year, confirmed a VAT rate of between 3 and 5 per cent across the GCC, with Younis Haji Al Khoori, Undersecretary at the MoF, revealing that the GCC countries have agreed to unify their tax policies before the introduction of the VAT.

At that time, Al Khoori reckoned that the UAE stands to earn estimated VAT revenues of between Dh10 billion and Dh12 billion in the first year of its application.

He had reiterated that this amount is after exempting sectors such as healthcare and education in addition to several food items of the new tax.

Al Tayer, meanwhile, noted that the Ministry is currently in early stages of studying the potential economic and social impacts of implementing corporate tax. 

UAE says no to income tax – for now

The UAE Finance Ministry also confirmed that it is not considering implementing a personal income tax on individuals, according to Arabic daily Emarat Al Youm.

Al Tayer said that the UAE hasn’t undertaken any study on personal income tax so far and said that no such proposal was under consideration.

He added that the current priority of the Ministry was putting in place the infrastructure required for the implementation of VAT.

The IMF’s Lagarde had, earlier this week, reiterated the Fund’s taxation advice to the Gulf Cooperation Council (GCC), which included implementing VAT as a first step towards generating higher and more reliable revenue streams.

She also advised the region’s governments to have the tax infrastructure ready for the imposition of personal income taxes.

“…Continue to invest in building tax administration capacity that could eventually allow for the introduction of personal income taxes,” she said.

Stuart Halstead, Indirect Tax Leader at Deloitte Middle East, told Emirates 24|7: “Personal taxes offer a real challenge to the ‘tax free’ branding of the UAE and much of the GCC whilst a VAT seems to achieve what is needed right now and balances the requirements of the economy, businesses and consumers well.”

Why VAT?

The IMF is only one among other international bodies that have been advising the UAE and the rest of the GCC countries to introduce taxation among several options for the government to strengthen their revenue base in order to minimise dependence on the fluctuating global oil price.

Al Tayer has now revealed that agreements having been reached by members of the GCC on certain aspects of the VAT systems and the remaining question now is when everyone across the GCC will implement it.

“Governments in the region are facing deficit budgets over the short- to medium-term due to the low oil price environment. Policymakers will be prompted to introduce the VAT regime sooner rather than later,” Finbarr Sexton – Mena Indirect Tax Leader at EY, told this website earlier.