• March 29, 2024

UAE plans introduction of new federal taxes

The government of the United Arab Emirates has drawn up plans to introduce federal value-added tax (VAT) and corporation tax, according to a story in The National citing its Arabic-language sister paper, Al Ittihad.

This would make the UAE the first country in the Arabian Gulf to introduce such a tax on consumption.

Under the plans, VAT would be levied at a higher rate on tobacco, alcohol and luxury goods, while basic goods and essentials would be exempt.

The government did not specify what the VAT rate would be, but the IMF has previously recommended that the UAE set it at, or about, five percent.

It is not known when the government would introduce VAT, though it is understood that companies and consumers would be given up to two years to adjust to VAT.

The government plans also to introduce a corporation tax, but no details were provided. The UAE currently levies corporation tax on foreign banks’ operations in the country.

The Ministry of Finance, which is responsible for federal tax collection and government accounts, was quoted as saying that it had finished drafting laws providing for a federal tax system, in addition to legislation to introduce VAT and corporation tax.

It is likely, however, to be some time before the proposals become law. High-profile legislation has to be shuttled between all interested government departments, before it is scrutinised by the Federal National Council, approved by the Federal Supreme Council, and signed by President Sheikh Khalifa.

The move comes as Gulf states address a new era of low oil prices. Oil has fallen from about $115 per barrel in June last year to about $50 per barrel now, cutting government revenues by about 20 percent against 2013 levels.