Examining VAT

Aaron White, regional director, Sage Middle East, explains the implications of VAT being implemented in the UAE in 2018.

On 1 January 2018, value-added tax (VAT) will come into effect for the first time in United Arab Emirates. Naturally, small businesses are concerned about the financial and operational impacts of VAT compliance, especially since they’re used to operating in a low-tax business environment.

While there will be implications for systems, infrastructure, skills and training, there are a number of benefits to the new tax system on businesses and the economy.

But first, let’s take a step back to understand why VAT is being implemented in the first place.

For decades, the economies of the GCC countries have benefitted from high oil prices. However, a drop in demand, increased global competition, and a substantial decrease in the price of crude oil per barrel – from a peak of $147 in 2008 to about $50 today – has forced GCC countries to look for other sources of revenue to diversify their economies and remain globally competitive.

VAT is one such revenue source, and because tax is an unfamiliar topic in the GCC, you might have some questions about how it will impact your small and medium business.

What is VAT?

VAT is a tax on the consumption of goods and services and has been set at 5% across GCC countries. This rate is among the lowest in the world, with some countries charging VAT of more than 20%.