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24 February 2024

VAT relief for small businesses

By Joseph George



Small businesses will not be liable for Value Added Tax (VAT) when it is introduced in the UAE, senior customs officials revealed yesterday.

“The business size that defines the classification of taxpaying companies is being studied as small firms will be exempt,” said Abdul Rahman Al Saleh, Executive Director of Corporate Support at Dubai Customs.

Analysts say criteria for deciding what size of company is classed as a small business should be based on assets.

Another official said: “It will definitely not be based on the number of employees, as determined for the Emiratisation process. The scale of measurement will be linked to a firm’s assets and the volume of trade.”

Al Saleh is leading a team of customs officers that is taking part in a study on the introduction of VAT in the Gulf Co-operation Council countries. The International Monetary Fund is also involved in the project, which is being carried out in association with the UAE Ministry of Finance. The move is aimed at diversifying the GCC states’ revenue streams and reducing their dependency on oil. Oil represents just six per cent of Dubai’s gross domestic product.

On Tuesday, Emirates Business reported the tax would not come into force for at least 18 months.

Al Saleh added: “The application of the new system will not place any burden on traders and investors. And there will be a mechanism in place for tourists to receive VAT refunds.”

He said though taxes have not been imposed on GCC investors and consumers in the past, the levy would be applied professionally and with fairness.

Customs chiefs say the tax will replace the existing five per cent customs duty, and analysts believe it will be applied at a rate of between three and six per cent.