Dubai is one of the seven emirates that make up the United Arab Emirates. The UAE does not have any federal income tax. An income tax decree has been enacted by each emirate, but its enforcement is restricted to oil companies and foreign banks that operate in UAE.
The Tax Procedures Law has been enacted lately and this serves as the foundation of the planned tax system which regulates tax collection and defines the role of the Federal Tax Authority. This enables the collection of taxes such as VAT. This introduced VAT at 5 percent starting this year. Excise taxes have been brought in by the fourth quarter of last year.
VAT is value-added tax. Other countries call it GST or goods and services tax. It’s a consumption tax that is imposed on any product at every stage of the production process before the final sale. VAT is not an extra or an add-on to the selling price. In the UAE, VAT will be calculated as a percentage of a product’s retail sale price.
Excise tax on the other hand is a levy. It is imposed on the manufacturer but not the customer when the product is created. Most often it comes in customs duties. But same as VAT, the manufacturer passes the obligation to the consumers by including it in the product’s price. Its only difference from VAT is that it can only be applied on certain goods. It is often called “sin tax” since it is often implemented on products that are detrimental to the society such as tobacco, soft drinks, alcohol, confectionery, etc.
The taxed items are the non-essential consumer items which means anything except basic food and essential commodities such as medicines or hospital bills and school tuition fees.
The following are taxed with the implementation of VAT and excise taxes:
These are those who buy the non-essential items. They will have to pay 5 percent more for these items. You’ll feel the effect if you are regularly consuming soft drinks, alcohol, or tobacco.
All sales of commercial property will be applied with VAT at a standard rate.
Businesses that provide taxable services and goods with an annual revenue that does not exceed Dh375,000 are required to register for VAT. Those that have taxable supplies below Dh375,000 but over Dh187,500 may opt to register for it. Those that provide education and health services may reclaim VAT from the government.
Residential tenants’ leases will not be leased but commercial tenants are required to pay VAT.
Property developers and the first sale of newly built homes are taxed. This means that the property developer may reclaim the VAT that they need to pay to the government.
Importers or Re-exporters
Goods that are imported to Dubai and the UAE for re-exportation, they will be subject to customs duties in the UAE and they will be applied with VAT in their final destination. If goods are imported into Dubai and the UAE without any final destination, VAT becomes payable also in the UAE. This has to be reclaimable.
If you're planning to invest or set up a company in Dubai, don't forget to contact HBS Dubai for professional consultation and tax-related advice.