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United Arab Emirates: New Law Issued Creating Value-Added Tax on Transactions

(Oct. 3, 2017) On August 28, 2017, the United Arab Emirates (UAE) Ministry of Finance announced the issuance of Federal Law No. 8 of 2017 on Value-Added Tax (VAT). (Federal Law No. 8 of 2017 on VAT, UAE Ministry of Finance website (Aug. 28, 2017) (click on the PDF icon to view text of the law).) The new law will enter into force in January 2018.  The UAE government is expecting VAT to help provide a new revenue source to alleviate the burdens on the government budget. Law No. 8 of 2017 will apply to the majority of transactions involving goods and services, other than those specifically exempted by its provisions. (UAE President Issues VAT Decree-Law with One of the Lowest Rates in the World, UAE Ministry of Finance website (Aug. 28, 2017).)

Zero-Rated and Exempted Transactions

According to Law No. 8 of 2017, there are zero-rated and exempted businesses in connection with registration for the VAT.  Zero-rated businesses will still be subject to VAT, but they are entitled to register for their VAT to be returned at the end of the year.  Exempted businesses do not pay VAT and thus do not register for any return.  (Consumer’s Guide: Zero-Rated and Exempt Goods in UAE’s VAT Law, AL BAWABA (Sept. 6, 2017).)

Article 45 of the Law states that businesses engaged in the following activities are considered zero-rated: 1) export of goods and services outside Gulf countries; 2) transfer of passengers through UAE airports; 3) import of materials to erect buildings that are specifically designed to be used by charitable organizations; 4) provision of educational services and goods for nurseries and for preschool, elementary education, and higher educational institutions owned or funded by the Federal or local government; and 5) supply of preventive and basic healthcare services. (Federal Decree-Law No. (8) of 2017 on Value Added Tax (unofficial English translation), UAE Ministry of Finance website (Aug. 23, 2017, published on Aug. 28, 2017).)

Article 46 of the Law identifies exempted transactions to include: 1) financial services; 2) sale and lease transactions involving residential buildings; 3) the sale of vacant plots of land; and 4) domestic passenger transport services.  (Id.)

VAT Application

The new Law also stipulates than an executive regulation will be issued to explain the application of its provisions. However, this executive regulation has not yet been issued by the federal government. (Ed Clowes, What Products and Services Will Not Be Taxed from January 1?, GULF NEWS (Sept. 4, 2017); Dana Moukhallati, Consumer Fears over High Cost of Living After VAT, THE NATIONAL (Apr. 1, 2017).)

Prepared by Ammar Alsallumi, Law Library Intern, under the supervision of George Sadek, Legal Research Analyst.