Head of Dubai Office
The intention to introduce VAT in Dubai with effect from 1 January 2018 and across the wider GCC region either on that date or the following year has caused professionals and others in Dubai to speculate whether the continuing depressed price of oil and gas might pave the way for the introduction of other GCC harmonised taxes.
It is recognised that for the GCC governments to deliver on long-standing commitments to diversify away from their dependence on oil and gas revenues, the basis of taxation has to change. The consensus is that the introduction of personal taxes such as income and inheritance tax are unlikely, as is the introduction of capital gains tax, although corporation tax already exists, albeit that companies other than oil companies and the subsidiaries of foreign banks are zero rated. Any extension to the corporation tax base is not without difficulty for example Free Zone companies have 50 tax year exemptions.
So whilst the sands are shifting with the introduction of VAT, it is wrong to think of Dubai as being entirely tax free and this being a fundamental change as indirect taxes are already applied on hotel revenues and entertainment, alcohol, rental income, and road tolls. Customs duties exist albeit not on goods in transit, and property is taxed through stamp duty and registration fees. The introduction of VAT therefore extends the scope of indirect taxation although there is no doubt that as far as taxation is concerned the UAE remains a very attractive destination.
The accountancy profession in the region is very active preparing businesses for the introduction of VAT, the headlines being:
The impact on domestic households in a country where prices are already high is of concern to some, as is competition in the retail sector with the feeling being that many businesses may have to absorb the VAT burden. This is particularly so in the tourism sector.
Aside from the economic impact of applying a 5% tax on goods and services there is a practical impact on businesses, many of whom will find they need to improve their internal financial accounting so as to meet reporting requirements next year. In the longer term this may prove no bad thing as poor financial record keeping often hampers owners disposing of their businesses.
Minerva does not provide tax advice however our wide network of professional advisers includes tax specialists to whom we are very happy to effect introductions, and who can provide information on all aspects of taxation across the GCC region.
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