The United Arab Emirates (UAE) ministry of finance says it intends to introduce value-added tax (VAT) to most goods and services by January 1, 2018. VAT is expected to be applied at 5%, and extended to the wider Gulf Co-operation Council (GCC) region.
The move is largely designed to increase and diversify the region’s revenue base as it decreases reliance on hydrocarbons, the mainstay of the economy. The International Monetary Fund estimates GCC governments will face a combined deficit of about $530bn over the next five years, based on an oil price of $56 a barrel.
The UAE Ministry of Finance’s website says: “VAT will provide our country with a new source of income, which will contribute to the continued provision of high-quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.”
Some worry that this may blemish the UAE’s status as a tax-free haven as legally, occupants of the country’s many free zones are guaranteed a 30-year tax holiday. Whether the VAT will be applied to companies in the country’s free zone community is not yet known.