This is how the UAE’s new tax laws will affect you

The impending implementation of tax is an overwhelming thought for many of us. But don’t panic, it’s not as complicated as it seems

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The Middle East has long been a tax haven that brought jealous looks from many corners of the world, but times are changing and so is the regional economy with the introduction of new laws involving tax.

Given the reduction in oil prices and looking to diversify revenue streams, the UAE, along with other GCC nations, set about introducing excise and value-added tax (VAT).

Following the recent announcement of the decree laws, here’s what you can expect for each type of tax and how it will affect you.

What is excise tax?

Due to be introduced from 1st October 2017, excise tax will be placed upon a number
of popular consumer products that are deemed by the government to be harmful
to public health.

As outlined in the decree law, the UAE plans to introduce tax rates of 100 percent on tobacco and energy drinks, and 50 percent on fizzy drinks.

The tax is placed directly on the import or production of these products and there are a number of tax evasion violations that will entitle penalties to be issued to retailers or producers who do not comply with
the regulations.

The law states that taxable persons or entities will be required by law to have a
full, detailed record of all produced, imported, exported or stockpiled excise goods, and records of stock levels, including details of items lost or destroyed, among other measures.

Business owners, retailers and corporations that import or export goods will have to familiarise themselves with the new regulations or face penalties for failing to meet the requirements.

How will it affect me?

As an indirect taxation, customers will not be liable for paying the tax, but the products that are included in the excise tax are expected to become more expensive as the retailer, producer or importer will face increasing costs.

Energy drinks, tobacco products and carbonated drinks should increase in price, however it will be unclear by exactly how much until the tax is introduced.

It is possible that retailers will increase the price by as much as 50 percent and up to 100 percent with certain products to levy the cost of the tax.

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What is VAT?

The most common type of consumption tax, VAT has been implemented in over 150 countries, and is a tax placed upon goods and services at the time of production or sale.

The UAE will introduce VAT from January 2018 at a rate of five percent, which is among the world’s lowest rates – some countries like the UK charge as much as 20 percent VAT.

In the UAE, the tax will be enforced on the import, transfer and supply of goods
and services, however, exceptions will apply to some sectors deemed zero-rate, including education, healthcare and some real estate transactions.

Introducing VAT will help the government to reduce its dependency on oil, and raise the gross domestic product (GDP), that’s the total value of goods produced and services provided in a country, by a few percent, thereby strengthening the local economy. What’s more, it will allow the government a greater budget to carry out high quality public services and projects in the future.

How will it affect me?

VAT will mostly impact small and medium businesses rather than individual consumers.

In fact, a list of 94 basic food products has been made exempt from the tax, including fresh fruits, coffee, tea and sugar, so most shoppers are unlikely to notice a big difference to their spending.

However, luxury food items including chocolates and sweets are likely to be subject to VAT and are anticipated to go up in price, however, unlike in the US where the tax is added at the point of purchase, the tax will be included in the price.

With education, healthcare, property rental and local passenger transport all exempt from the tax, the changes are unlikely to majorly impact the vast majority of residents. That being said, some financial experts have suggested that this may be the first step towards wider taxation in the UAE, and the Federal Tax Authority has admitted it is already looking into other types of tax, however, personal income tax is not one of them.

As a business, it’s important to know if you qualify as a taxable person and register accordingly. To find out more, register or seek advice, contact: 600 599 994, tax.gov.ae

WORDS Colin Armstrong

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