Low VAT Rate on UAE Firms

The implementation of Value-Added Tax (VAT) across the United Arab Emirates (UAE) may possibly increase the cost of conducting business within the country. Nonetheless, according to experts, the cost of doing business will not be affected significantly, as the VAT rate is expected to be set at merely 5%.

Organizations and companies are called to get informed on the VAT legislation in advance, in order to prepare financial and management systems as per the requirements of the legislation.

Informative discussions regarding the impact of the introduction of the VAT were recently held by aafaq Islamic Finance and the Chartered Certified Accountants (ACCA) in Dubai.

In general, it is believed that the more simplified the system is, the greater the consistency there will be throughout the GCC, making the implementation of VAT easier for everyone.

It is anticipated that it will be difficult to introduce the VAT system into the judicial structure. This process will possibly take longer to implement and develop.

In light of the UAE’s top-notch infrastructure, strategic geographical position as well as economic and political stability, it is expected that the introduction of the VAT will not affect foreign investment flows.

On the other hand, the forthcoming introduction of Corporate Tax is worrisome for Small and Medium Enterprises (SMEs) across the UAE. This is the case because up until now SMEs have been used to operating within a tax-free environment. During the discussions, it was emphasized that particular tax reliefs and exemptions on revenue may be introduced to support SMEs, but it is significant for SMEs to prepare in order to adapt to a tax environment.

Many advisory firms will be at the disposal of companies to enlighten and guide companies once the VAT legislation is finalized.

The ACCA emphasized that Europe introduced VAT in the 1970s. The burden of the tax is ultimately added to the final consumer. It is believed that all the members of the ACCA are ready to adapt to the implementation of the VAT. All the members are willing to comply with the tax legislation in line with the International Financial Reporting Standards (IFRS). The most vulnerable group is the SMEs, which is believed that with the adequate training and guidance, the businesses will rapidly develop, recruit experts and adapt to the changes the VAT will bring.