Albert Einstein once said that the hardest thing in the world to understand is taxation. For UAE residences, this may have been hard to relate to, but not for long.

We wrote an article some time back about Will Taxes in the UAE be Implemented and here’s the second part of it.

From January 1, 2018, the UAE will impose a five percent VAT while exempting 150 food items, healthcare and education. This would be the first time the region has introduced direct taxation. The Gulf Cooperation Council (GCC) resolution covering the tax will come into effect in 2018 but countries will have until January 1 2019 to implement VAT.

In the first year, the UAE is expected to generate AED12 billion from tax revenue in an attempt to diversify revenues following a dip in oil prices. Considering that the UAE economy is forecast to grow to $440 billion in 2019, the VAT contribution would be approximately $6.5 billion, according to expert estimates.

How will VAT affect businesses?

Will VAT disincentive businesses considering investment in the region? Not really, we reckon. Corporate income tax (CIT) is more likely to discourage investment as it may present a challenge to the tax-free branding that has served the UAE so well.

For sure, business owners will require time to get acquainted with the new system and revamp their financial systems. Moreover, entrepreneurs must now look at the suppliers for the goods and services they use to run their business, and determine the impact of VAT.

How will VAT affect the common man?

Basic food items exempt from VAT are likely to include fresh fruits, coffee and tea, wheat and cereal flours, sugar, infant milk foods, uncooked pasta, etc. Most food items – processed and cooked – and foods falling into the luxury goods category such as confectionery, chocolates, etc. will be subject to the standard 5 percent VAT.

VAT on real estate is another area that consumers need to watch out for. The sale of new properties and the subsequent resale by an individual may be subject to different VAT rules. Additionally the rental of commercial property may be treated differently to the rental of residential property.

The UAE still says no to income tax – for now?

Going by UAE Finance Ministry revelations, the government is not considering implementing a personal income tax on individuals and hasn’t undertaken any study on personal income tax so far. Reports also seem to suggest that the current priority of the Ministry is putting in place the infrastructure required for the implementation of VAT.

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