UAE – Corporate Tax & VAT

According to recent developments, the United Arab Emirates (UAE) is planning to introduce a new tax in order to increase government revenues. The drafting of new laws concerning both the implementation of Value-Added Tax (VAT) and Corporate Tax is estimated will be completed within the next three months.

In line with the Ministry of Finance, the local and federal governments have already discussed the drafts of both the VAT and Corporate Tax legislation. Although the authorities are still assessing the impact these laws will bring both on a social and economic level, it is estimated that the drafting will soon be complete.

The Golf Corporation Council (GCC) made the decision to implement VAT. During a meeting amongst the Financial and Economic Cooperation Committee of the GCC that was held in Doha, a draft VAT agreement was proposed which most likely all the member governments will approve.

As maintained by the Doha agreement, every GCC member must prepare a draft outlining its individual VAT legislation that complies with the legal structure maintained by the Gulf custom union doctrines and policies.

Based on a recent report of the UAE Ministry of Finance, the committee has already agreed on some draft laws concerning VAT and Corporate Tax. Furthermore, the UAE Ministry of Finance is in the process of setting up a new federal tax authority. The report did not state when the new tax authority would be active.

All of the six members of the GCC have been contemplating on implementing VAT since 2007 in order to generate revenues. Discussions on this matter have been taking place amongst all the member countries of the GCC in order to evade loss of competition amongst them.

Due to the slump of oil prices, the GCC has been forced to expedite the implementation of a VAT, since the majority of countries are anticipated to face financial deficits in the following fiscal year and are hesitant to cut down expenditure on infrastructure, which in effect develops and enhances their economies.

The International Monetary Fund (IMF) has advised the UAE to implement a Corporate Tax on both foreign and local companies. Apart from the UAE oil sector, companies in the UAE are subject to minimal Corporate Tax or are not taxed at all, with the exception of foreign banks located in Dubai, which are subject to 20% tax.