FNC APPROVES TAX LAW PAVING WAY FOR VAT
— The UAE’s Federal National Council (FNC) on Wednesday approved the draft tax law, which serves as a legal framework to regulate the implementation of the impending value-added tax (VAT) in the country.
According to the law, business owners and landlords will be required to pay a 5 per cent VAT starting January 1, 2018, helping generate additional revenue for the federal government and enabling a sustainable economic growth.
The law requires private businesses earning Dh370,000 or more a year to pay VAT. In addi- tion, VAT will also be binding on landlords renting out properties.
Obaid Humaid Al Tayer, the Minister of State for Financial Affairs, said the impact of VAT on a resident’s budget will average 1.3 per cent and will drop as time goes by, whereas businesses will face only a 0.06 per cent VAT impact on their bottom lines initially. The UAE is expected to exempt 95 essential items from the new levy.
“The cost of living is likely to increase slightly, but this will vary depending on the individual’s spending behaviour,” the Ministry said on its website. The tax law will need final approval by the President before implementation.
The finance ministry said on Wednesday it will start running a series of workshops starting this month to educate businesses on VAT and excise tax implementation, with special sessions for small and medium enterprises. The first session will take place on March 21 in Dubai.
— Business owners and landlords will have to pay a five per cent value-added tax (VAT) starting January 2018. In its session on Wednesday, the Federal National Council (FNC) approved the draft law, which serves as a legal framework and organises the regulations of taxes.
These taxes will generate additional revenues for the federal government and enable a sustainable economic growth.
Private businesses making Dh370,000 and more a year will have to pay VAT. The tax is binding on landlords renting out properties as well, which could mean a rise in rents for tenants across the UAE.
Obaid Humaid Al Tayer, Minister of State for Financial Affairs, said the effect of the VAT on people in general, including residents and consumers, will start at 1.3 per cent and will drop by time, whereas businesses will face 0.06 per cent.
There are currently more than 450,000 private companies in the UAE, and the number is expected to soon reach 600,000, the minister said. VAT will help boost the country’s annual Gross Domestic Product (GDP), he added.
Last year, the GCC countries — UAE, Saudi Arabia, Qatar, Bahrain and Oman — signed an agreement to implement a VAT of five per cent.
Al Tayer said the law will be implemented in the UAE on January 1, 2018. However, all GCC members have until January 1, 2019, to implement the VAT. “VAT is the only law that is currently with the legislative committee, as well as the selective items tax on tobacco, fizzy drinks and energy drinks.”
The minister said the law will also provide the authorities concerned measures to address procedures for tax collectors, tax auditing, tax avoidance, violations and penalties.
The draft law stipulates that fines for those avoiding their taxes shall not exceed five times the value of the evaded tax.
The minister said that by 2021, the aim is to generate 80 per cent of the UAE’s economy through non-oil sectors.
Selective items tax
The GCC countries had also agreed to introduce a ‘selective items tax’ on tobacco, soft drinks and energy drinks.
The cap for the selected items tax is 100 per cent. Saudi Arabia has already drafted a law in this regard and placed a 100 per cent tax on tobacco and 35 per cent on soft drinks.
Although the UAE’s Ministry of Finance has yet to confirm the amount of tax implemented on its selected items, Al Tayer said it is expected to be applied this year.
“The cap is 100 per cent, it could be less depending on each country,” said Al Tayer. “Once the law is issued, it will say when it will be implemented.”
The revenue generated from tobacco products alone is expected to reach Dh2 billion a year.