UAE and other Gulf countries enjoyed the benefits of oil and petroleum export for decades. They used this advantage to provide high lifestyle to their citizens and residents at very low cost and also provided tax free incentives to businesses. This resulted in the growth of commercial activities and arrival of large number of investors and entrepreneurs in the country. But the situation changed almost completely in 2014 due to severe decrease in the prices of petroleum products.
It forced UAE (and other countries in the region) to think differently from past. It is highly expected that petroleum prices are becoming unpredictable and will not reach previous high in near or even far future. Therefore, complete change in economic policy was required. Now it was evident that complete tax-free policy for businesses can’t be retain for longer. Therefore, UAE (and Saudi Arabia) implemented 5% VAT on businesses from 1st of January 2018.
This new tax was applied on almost all types of businesses and its effects were felt on wider scale. It is important to note that there are three areas in UAE that supports businesses. These are UAE mainland, free zones and few offshore jurisdictions in UAE. VAT has been implemented in most of the businesses located in mainland UAE.
But there were several business sectors that were either tax-free from VAT from beginning or were given exemption from this tax later. It was seen with tax exemption on residential property in UAE and reversal of VAT on gold and diamond trading. There are few other businesses also exempted from VAT in UAE in order to provide relief to such businesses.
The situation is quite bit similar in free zones. VAT is applied on several free zones as well. But it is allowed for these free zones to eradicate this tax on companies after fulfilling few conditions. It is the reason that now at least 23 free zones have been completely exempted from VAT and all the businesses located inside these businesses don’t pay tax at all and works according to previous system.
There is no change in the structure or running of offshore businesses in UAE. All the three UAE offshore jurisdictions (JAFZA, Ras al Khaimah and Ajman) are completely tax free as previously and offshore companies will not be required to pay anything for VAT or any other type of tax.
Following is the important information that we can gather through this above mentioned detail. These are few positive points for businesses in UAE.
- The rate of VAT is very low at just 5%. This rate is lower than most of other countries. Most of businesses and residents can easily pay this small tax that will affect businesses only marginally
- There is no VAT over sectors that provide basic necessities to common people
- Few business sectors in UAE mainland and several free zones are exempted from VAT
- The government has removed VAT from few sectors in order to boost them. It is possible that more businesses will be removed from tax list in future
- There is no change in tax situation in offshore jurisdictions in UAE. These areas are still acting as tax havens for investors
- The revenue generate from VAT will be used for improvement of business conditions in the country and provide basic necessities to residents of UAE
All these points clearly reveal that UAE is still an ideal place for all types of businesses despite the implementation of VAT from 2018. It is the reason that businesses in almost all sectors are continuously flourishing even after VAT. The government is also aware about the situation of all sectors of business and is ready to reverse this tax from businesses if it is hindering their growth in a negative way.
Therefore, there is no need for any company to worry about VAT before starting its venture in UAE. Despite the implementation of VAT, UAE is still one of the best places for all types of businesses. If you want to take advantage of the business opportunities in UAE, then we can assist you in establishing your business in UAE mainland, in any of the 45 plus free zones or one of three offshore jurisdictions in UAE. We will also provide VAT services in Dubai and other emirates of UAE for better management of taxes. You can contact us via our WhatsApp # 971-56-9971225 or email address firstname.lastname@example.org.