UAE and Saudi Arabia are the two gulf nations set to implement value added tax (VAT) from 1st of January 2018. There is lot of concern and research on this topic in UAE by residents and entrepreneurs as they are still not completely aware about the situation. It is due to the emergence of conflicting reports about the type of products that will be affected by VAT. But now it seems the things are going clearer as the time for implementation of tax is getting nearer. UAE has also rejected an appeal from influential banker for delaying VAT which shows the seriousness of the government on this issue as the purpose of VAT is to diversify economy which is inevitable after 2014 oil crisis.
Recently, the Federal Tax Authority (FTA) has issued the list of products and services related to several industries and their relation with VAT. According to the latest announcement by FTA, the tax rate on sectors including education, healthcare, real estate, financial services, jewelry, transport, oil & gas, food & beverages and telecommunication are revealed. Implementation of VAT on government bodies, non-profit organizations and free zones will be decided by the UAE cabinet.
In education sector, there is 0% VAT on public & private school education, higher education (all public institutes & private institutes with 50% govt. funded), educational school trips and after school activities without extra charge. 5% VAT will be applied on private higher education (not fulfilling condition mentioned above), electronic equipment, school uniform, stationary, school grounds renting for events and school trips for recreational activities.
In healthcare sector, 0% VAT will be applied on preventive healthcare services, healthcare services for treatment and medical equipment decided by cabinet. On the other hand, healthcare services other than preventive and treatment (cosmetics, elective etc.) and medical equipment not decided by cabinet will pay 5% VAT.
Crude oil and natural gas is zero rated while 5% tax will be applied on other items like petrol available at the pump. Transportation is completely free from VAT. Domestic passenger transportation is exempted from tax while there is 0% VAT on other types of transportation including international transportation (both passengers and goods).
For real estate sector, there is tax exemption for sale/rent of residential building (after first supply) and bare land, while (first) sale/rent of residential building and first sale of charitable building with be zero rated. 5% VAT will be applied on sale/rent of commercial building, land other than bare land along with hotels, motels etc. The same tax will also be applied on UAE citizens building their own homes but this tax is recoverable.
Financial sector will largely be exempted from tax but 5% standard VAT is applicable on products with commission, discount, rebate or obvious fee. Life insurance will be exempted from this tax but standard 5% tax is payable on all other types of insurance and reinsurance.
There will be 5% flat tax on all the food items and beverages along with electronic services and (wired and wireless) telecommunications. If gold and other precious metals are equal to or more than 99% pure, than they are zero rated from VAT. Jewelry and metals less than 99% purity will be taxed on 5% standard rate.
This current notification by FTA will provide relief for many as it will at least clarify the situation a lot for them. To make things clearer regarding VAT, you can contact Riz & Mona Consultancy as our tax experts can fully assist you understand and handle the situation that you are going to face after 1st of January 2018. We can have a chat via our WhatsApp # 971-56-9971225.