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Taxes in UAE – What You Need to Know?

The taxes in UAE are finally going to be implemented. The status of the UAE to be a tax-free economy is soon going to end.

Last month, the issuance of the Tax Procedure Law laid down the foundations of the planned tax system in UAE. The implementation of VAT at the rate of 5 percent from January 1st, 2018, will implement the rule.

It is not just the VAT. The UAE authorities will also apply the Excise Duties too in last quarter of 2017. The UAE residents will see the details of the taxable goods in the next few months.

Introduction to Value Added Tax

The VAT or GST in other countries is imposed on the products and services sold to the customers. The imposition of VAT will add to the total price of a product or service. The UAE authorities will determine the amount of VAT on a product based on its retail price.  

Excise Duty

The manufacturer of a product has to pay the excise duty. Many factors calculate excise duty including purposes and intents. However, even if the manufacturer has to pay for Excise, the cost is transferred to the customer.

Excise, unlike the VAT or GST, is not imposed on all the products. It is only imposed on a particular type of goods. Excise is usually imposed on products that are considered “not good” for the society. Typical examples include fast food, alcohol, tobacco, and soft drinks.

Taxes in UAE - What You Need to Know? The new tax will be implemented across the board, besides VAT, UAE will implement Excise Duties too.

Products or Goods Taxable Under VAT

Anything that is not part of the necessities will come under taxes. It may include commodities, fast food, hospital bills, and education fee. Only 100 or fewer items listed under a separate category will be exempted from taxation.

Who Will Be Taxed in UAE?

There is an extensive list of individuals and entities who will come under taxes in UAE. The new tax bracket will expand to companies, consumers, home sellers, importers, exporters, and re-exporters.

Why Taxes in UAE?

There is a big “why” everyone is asking about bringing taxes in UAE.

We all know the UAE’s dependence on oil production. Tourism and everything else does not come close to it. There is a significant deficit between income and expenses, which will make it difficult for UAE in overcoming the shortfall.

IMF warned UAE in 2015 that it had to do more to improve its financial situation. Furthermore, the International Monetary Fund stated that the combined fiscal debt of all Gulf States between 2015 and 2019 would be more than $700 billion. Although, estimate suggests first-year income be around AED 12 billion.

Tax on Personal Income

There is no news yet of any tax imposed on the personal income. The new Tax Procedures Law does not suggest any plans on introducing taxes in individuals.

Why Imposing of Taxes in UAE May Be a Good Idea?  

The business community believes it is a good idea to impose taxes in UAE. They think it would help improve the economic outlook of the UAE. Furthermore, they add that many illegal businesses also operate there. Therefore, they believe that the new law will let the government monitor all the companies operating in UAE.  

Opposition to Taxes in UAE

Consumers do not like the imposition of 5% value-added tax to the products and services. They believe the new tax would add an extra burden on their pocket. They would have to pay more amount of money for the goods and services they routine utilize. Similarly, parents are worried that they would have to devote more money for their children’s school fee.

Some Other Things You Need to Know

  • Business organizations will be required to maintain tax records.
  • The Government of UAE will impose penalties for any effort to evade taxes.
  • The Government will, under the new law, be able to conduct an audit of anyone, seeing if they are complying or not.

We already see governments around the world tightening screws on tax evasion. India’s one tax one nation is a prime example of governments trying to increase their tax net.

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