Introduction of VAT in the UAE

VAT or Value Added Tax is the tax on the consumption of goods. Typically, it is paid by the end consumer and imposed on products and services at the point of sale. VAT is an indirect tax, and it is levied by nearly 200 countries around the globe while companies collect the VAT tax on behalf of the Federal Tax Authority. It is similar to general sales tax. However, there are some clear particular differences between the two.

VAT in the UAE – motives for introduction

The states of the Gulf Cooperation have recently taken the important decision of introducing VAT tax. This decision was prompted by the decrease in oil prices. The decline in oil prices gave the members of the GCC the incentive to think of other ways of raising funds for the smooth functioning of the economy. The governments of the GCC also strive not to rely too heavily on hydrocarbons as the main source of revenue. All this resulted in signing the agreement on the introduction of VAT. Each member state will elaborate its own legislation regulating VAT tax.

Introducing VAT in the states of the Gulf Cooperation and the UAE, in particular, is the important step. It will help the governments to further diversify the economy of the states and improve the quality of service in the public sector.