VAT guide: All you need to know!

Our handy list will help you understand VAT in a simplified manner that shows where VAT is being charged, where it isn't and how is this expected to impact us.

The introduction of a Value Added Tax (VAT) regime in the UAE marks the beginning of a new era in the history of the UAE economy where the general public will start sharing the burden of budgetary expenditure, starting today (January 1, 2018).

While the VAT is expected to contribute Dh12 billion to the UAE exchequer, studies show the consumption tax across GCC countries is expected to raise additional revenues between 1.2 to 1.6 percent of GDP in the first year.

The term "tax" is enough to send a shiver down the spine of most people, but fears of being heavily out of pocket with the introduction of VAT in the UAE can mostly be allayed.

So, no quibbling that VAT has been added to school fees, because it hasn't. But you can mutter to yourself over the rising cost of school uniform as the VAT rate of five percent will be applied to that.

Similarly, your rent won't be going up due to VAT, although it might still go up if your landlord decides you are due a hike (within the boundaries of rent caps and rent calculators depending whether you live in Dubai or Abu Dhabi or elsewhere of course).

Other key areas affected include insurance - motor, medical and health - food and beverages, petrol prices and telecoms services such as Etisalat and Du.

VAT will reduce the purchasing power of UAE residents in proportion to tax paid on consumption and families are bound to strategise their monthly expenses and budgets.

What is VAT?

Value added tax - This is a consumption tax imposed on a product at each stage of production, before the final sale.

What will be taxed?

Non-essential consumer items, namely anything other than basic food and essential commodities, such as medicines or hospital and school bills

Who will be taxed?

Companies: Businesses which provide taxable goods or services with annual revenue of more than AED 375, 000 will be required to register for VAT. Businesses with tax­able supplies below AED 375, 000 but over AED 187, 500 will have the option to register for it. Companies that provide health and education services can reclaim value added tax from the Government

Consumers: If you're buying any non-essential commodity, you're going to pay more - but at 5 per cent, you might not notice it so much. However, if you're a regular customer of sugary drinks, soft drinks, or tobacco, you'll inevitably feel the pinch - with these being subject to the highest price hikes.

Tenants: Residential tenants’ leases will not be taxed, but commercial tenants can expect to pay VAT. Offices, shops and other commercial property will be subject to it.

Homebuyers: Property developers and the first sale of new homes will not be taxed. This means property developers will be able to claim back any VAT they have to pay from the Government.

Home sellers: All sales of commercial property by VAT payers will attract VAT at a standard rate.

Importers/ re-exporters: As the GCC is a customs union; duties are only paid once at the point of entry to the area. As long as the goods are moved to their final destination within a defined period, duties are not payable. But this is where things get tricky. If goods are imported into the UAE, and set for re-exportation (with paperwork to prove it), they would be subject to customs duties in the UAE, but only attract VAT in their final destination. But, if the goods coming into the UAE have an uncertain final destination, VAT is also payable in the UAE.

Will your incomes be taxed?

Not yet, at least there's been no indication to the contrary. The was no reference made to personal income tax in the Tax Procedures Law, and government officials have previously said there are no plans to tax individuals on their earnings.

Become conscious of your spending habits and make amends where necessary to cope better with this new reality. A charge of five percent won't break bank accounts and disrupt lifestyles unless you allow it to by indulging in mindless consumption.

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