IMF welcomes UAE’s VAT plan


The United Arab Emirates (UAE) has announced plans to introduce a VAT regime and increase excise taxes, a move that has been welcomed by the International Monetary Fund (IMF).

The UAE Finance Minister has announced that Value Added Tax (VAT) will be introduced at an expected rate of 5% with around 100% items expected to be exempt. The UAE and the other Gulf Cooperation Council (GCC) members have been negotiating a proposed pan-GCC VAT for more than a decade and finally settled on a draft plan last year.

Due to continually falling oil prices, the UAE have seen a big drop in their revenue meaning they turned a deficit of 2.1% on GDP. Whilst they have already implemented several measures to combat this the IMF felt that they still needed to implement more changes and they believed the way to do this was through tax, so they are now very impressed with the UAE’s decision to implement VAT and they welcomed the Governments commitment to tackling their issues.

Whilst the rate is considerable lower than most other countries, it may still have an impact on businesses as for many the UAE was an attractive prospect due to it being an indirect tax haven. As there is currently no Indirect Tax system in the UAE many companies will not have an adequate tax system to cope with this change. This is one of the reasons why the Government are urging companies to start planning now even though the implementation date is almost 18 months away, this way they can ensure that they are ready for the go live date and face as little disruption as possible to business. Excise Taxes are also expected to rise to 15%.