On 23 August 2017, the UAE issued Federal Decree-Law No. 8 of 2017 on Value Added Tax (UAE VAT Law) to introduce VAT across the UAE. This briefing note provides some insight into the UAE VAT Law, supporting UAE legislation, as well as an update on developments across the Gulf Cooperation Council (GCC) Member States.
On 23 August 2017, the UAE issued Federal Decree-Law No. 8 of 2017 on Value Added Tax (UAE VAT Law) to introduce VAT across the UAE. The UAE VAT Law supplements:
- UAE Federal Law No. 7 of 2017 on Tax Procedures (issued on 11 June 2017)
- UAE Federal Decree-Law No. 7 of 2017 on Excise Tax (issued on 17 August 2017 in furtherance of the Excise Tax Treaty for the Gulf Cooperation Council (GCC) issued in April 2017), and
- UAE Federal Decree-Law No. 13 of 2016 on the Establishment of the UAE Federal Tax Authority (issued on 26 September 2016).
Further to the enactment of the UAE VAT Law, the UAE Ministry of Finance’s (MoF) VAT FAQ website (which can be found here) has been updated.
The UAE VAT Law confirms that VAT will be introduced across the UAE on 01 January 2018 at a rate of 5%. This is as expected and in accordance with the Unified Agreement for VAT across the GCC Region (Unified GCC VAT Agreement), which was originally published in the Saudi Arabia Official Gazette in April 2017.
VAT will be due on the importation of certain goods, as well as the supply or deemed supply of certain goods or services made by "Taxable Person" (ie a VAT-registered person under the UAE VAT Law). Businesses must register for VAT if their annual taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. Optional VAT registration will be open to those whose annual taxable supplies and expenses exceed the voluntary threshold of AED 187,500.
Article 45 of the UAE VAT Law outlines various categories of "Goods" and "Services" that will be subject to a zero rate of VAT, which include (but are not limited to):
- the export of "Goods" and "Services" to outside the GCC
- international transport of passengers and "Goods" which start or end in, or pass through, the UAE, including services related to such transport
- the supply of preventative and basic healthcare "Services" and related "Goods" and "Services"
- the supply of crude oil and natural gas
- the supply of newly constructed residential buildings, that are supplied for the first time, within three years of their construction, and
- the supply or import of “investment precious metals” for “investment purposes” (which the MoF VAT FAQs state as being “gold and silver of 99% purity”, ie .999 silver).
However, all of the above are subject to a number of conditions which the UAE VAT Law states will be clarified in the Executive Regulations to the UAE VAT Law (the “Executive Regulations”). It is expected that the Executive Regulations will be released in the coming months.
Article 45 of the UAE VAT Law states that the supply of certain financial services that are specified in the Executive Regulations will be exempt from VAT. Whilst the UAE VAT Law does not provide further guidance with regards to whether Shariah-compliant / Islamic financing will fall within an exemption, following a VAT briefing session on 21 March 2017, the MoF has confirmed that Shariah-compliant / Islamic financial products will be treated as equivalent to their corresponding conventional financial products (ie tax neutrality). The KSA VAT Law’s Implementing Regulations, which were issued in final form on 29 August 2017, establishes tax neutrality for Shariah-compliant / Islamic finance products against the equivalent conventional products. It is likely the UAE’s Executive Regulations will follow suit.
According to the MoF VAT FAQs, VAT will also be applicable to tourists visiting the UAE, ie those who are non-UAE residents.
Financial Free Zones (DIFC and ADGM)
Under Article 14 of the Emirate of Dubai Law that established the Dubai International Financial Centre (DIFC) (Emirate of Dubai Law No. 9 of 2004 in respect of the DIFC), starting from 2004 the DIFC is subject to a zero rate of tax for 50 years (with the possibility for renewal). The tax relief applies to, amongst others, "Centre Establishments" - defined as entities and businesses established, licensed, registered or authorised under the DIFC’s laws.
Similarly, with regards to the Abu Dhabi Global Market (ADGM), Article 18 of the Emirate of Abu Dhabi Law No. 4 of 2013 concerning the ADGM states that “Global Market Establishments” shall be subject to zero taxation relating to their operations within the ADGM for 50 years from 2013 (with the possibility for renewal). "Global Market Establishments" are defined as any company, branch, representative office, institutional entity or project registered or licensed to operate or conduct any activity within the ADGM by any of its authorities.
Whilst the UAE VAT Law does not specifically address the issue of Financial Free Zones, Articles 50 and 51 state that a "Designated Zone" that meets the conditions specified in the Executive Regulations shall be treated as being outside the UAE, and that such Executive Regulations shall also specify the conditions under which business conducted within the "Designated Zones" will be regarded as being conducted in the UAE.
A "Designated Zone" is defined as any area specified by a UAE Federal Cabinet Resolution for purposes of the UAE VAT Law. Our understanding is that the applicability of VAT within the Financial Free Zones will be addressed in the Executive Regulations which have yet to be issued.
Other GCC Member States
- Saudi Arabia (KSA) - The General Authority of Zakat and Tax of the KSA published its draft VAT law “KSA VAT Law" for public consultation on the 29 May 2017, which ended on 29 June 2017. The KSA VAT Law, which has now been approved by the KSA’s Shura Council, similarly carries a 5% rate of VAT and has an implementation date of 01 January 2018. Draft Implementing Regulations for the KSA VAT Law were issued for public consultation on 17 July 2017 with a deadline for comments by 19 August 2017. On 29 August, the KSA published the final form Implementing Regulations for the KSA VAT Law.
- Qatar - On 03 May 2017, the Qatar Council of Ministers announced the approval of the Qatar VAT Law and Excise Law and Executive Regulations (Qatar Tax Laws). The Qatar Tax Laws are understood to be in-line with both the UAE and KSA in terms of rate and general approach to exemptions, further to the Unified GCC VAT Agreement and the Excise Tax Treaty for the GCC. It is expected that Qatar will also give effect to the VAT Law as of 01 January 2018.
- Kuwait - it was announced on the Kuwait News Agency (KUNA) on 07 August 2017 that the Kuwaiti Cabinet approved draft bills giving effect to the Unified GCC VAT Agreement and the Excise Tax Treaty for the GCC. It is similarly expected that Kuwait will implement VAT at the same rate and conditions and on the same time-scale as the rest of the GCC.
- Bahrain - On 01 February 2017, Bahrain’s Minister of Finance signed the Unified GCC VAT Agreement and the Excise Tax Treaty for the GCC. As with the other GCC Member States, it is expected that Bahrain will issue supporting legislation and regulations in-line with the framework commitments mentioned.
- Oman - as part of its obligations under the Unified GCC VAT Agreement and the Excise Tax Treaty for the GCC, we understand that the Ministry of Finance in Oman is currently in the process of drafting its VAT and Excise laws.
Should you have any questions or concerns with regards to VAT and Excise implementation across the GCC, please contact us.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.