United Arab Emirates: VAT – Is Your Business Prepared?

Last Updated: 22 March 2017
Article by Prarthna Chaddha

In the rapidly changing legal environment of the GCC, the introduction of Value Added Tax (VAT) is the hottest of hot topics. In this briefing, we highlight what we know and, as importantly, what we do not yet know about the imposition of VAT for GCC businesses. We also suggest some simple steps businesses might think about now, in preparation for the implementation of VAT.

What is VAT?

VAT is a tax on the supply of goods and services. VAT is paid by the buyer of the goods or services at each step of the supply chain. Collection of VAT is facilitated by businesses, through the supply chain, on behalf of the government.

If you are in the middle of the supply chain, you can offset the VAT you pay to your suppliers (known as input VAT) from the VAT you collect from the buyers of your goods or services (known as output VAT). You are required to account to the government for the difference between the output VAT and input VAT, if the output VAT is the higher amount. In other words, in the situation where you have collected more VAT than you have paid. If you have paid more input VAT than you have received as output VAT, you may reclaim the difference from the government. The end consumer is ultimately liable for the full amount of VAT.

What do we know about GCC VAT?

The national governments of the GCC states have been co-operating on the imposition of VAT simultaneously across the GCC. A GCC Unified Agreement for VAT (also known as the VAT Framework Agreement) exists in final form, but has not been made public yet.

The VAT Framework Agreement will need to be approved and brought into effect by each of the GCC states, individually. It is likely that each GCC State also will publish its own legislation to practically apply VAT in its jurisdiction. To date, the government of the Kingdom of Saudi Arabia has approved the VAT Framework Agreement, as announced in the KSA Official Gazette (but without publishing the Agreement). No other GCC state has published any form of approval yet.

There is a lot of market speculation about the contents of the VAT Framework Agreement. The following are the key facts which have been made public for UAE businesses by the UAE Ministry of Finance:

  • The UAE government has stated that it is likely that VAT will be implemented in the UAE on 1 January 2018.The timeframe for other GCC states may not be the same.
  • The standard rate of VAT is likely to be 5%.
  • Businesses will need to be VAT registered.The UAE Ministry of Finance has stated that registration is expected to be available three months before the launch of VAT in the UAE.Businesses will be able to complete their VAT registration online.
  • Businesses will need to complete and submit VAT returns to the government on a regular basis.The UAE Ministry of Finance has stated that it is expected that the default VAT return filing period will be three months.In other words, there will be a quarterly filing and payment/reclaim process for most businesses.

What information is not yet known?

  • VAT exempt business – some businesses will be exempt from registration for VAT. The UAE Ministry of Finance has confirmed that the exemptions will be based on an annual turnover test. However, the threshold for this exemption has not yet been published. The intention is that small businesses will not be required to register and report on VAT in order to prevent additional costs disproportionate to their business size. This will put small businesses into the same position as an end consumer. Businesses with a certain level of turnover may be able to voluntarily register for VAT. Such businesses will need to consider the cost of compliance with VAT regulations versus the benefit of being VAT registered, being the amount that could potentially be reclaimed from purchases made by the business.
  • Free zones – one of the key unknown facts is whether VAT registration will apply to free zones companies and branches, and whether entities in the financial free zones (the DIFC and ADGM) will be treated differently to companies in the "classic" free zones (such as JAFZ and Creative Clusters). It is important to recognise that the tax reliefs granted to free zone entities are contained in Emirate level laws. For example, the DIFC tax relief of zero rate tax for a period of 50 years is set out in Dubai Law No. 9 of 2004. There are specific provisions of the UAE Constitution on federal taxation. Article 133 of the Constitution states that no person may be exempted from the payment of a federal tax except as provided specifically in a federal Law. Therefore, if the free zones and entities established within them will not be subjected to VAT, the VAT legislation will need to expressly carve them out.
  • Exempt or zero rated goods and services – the UAE Ministry of Finance has made clear that some limited goods and services will be subject to relief. The types of goods and services affected by these reliefs have not been officially confirmed in the UAE. However, press reports suggest that medicines, basic food products, and education may be included. It is also unknown whether these reliefs will be offered as exemptions or by "zero rating". Whilst, for the end consumer, the effect is the same, there is a key difference for businesses between the two in other VAT systems. Suppliers of "zero rated" goods and services must register for VAT. They charge output VAT at 0% on the "zero rated" goods and services, and usually may recover the input VAT they pay to enable those supplies. VAT exempt goods and services means that no output VAT is recorded at all, but also the supplier is generally not permitted to recover the associated input VAT either. Companies which supply only VAT exempted goods and services may not be required to register for VAT at all and therefore are in the same position as an end consumer.
  • VAT groups – in other VAT systems, it is possible to form VAT groups within company groups so that intra-group supplies do not attract VAT between the group members. There is usually one company which acts as the VAT representative of the entire group. It is not clear whether this group approach will be adopted in the UAE or the wider GCC. Historically, UAE legislation has not provided detailed provisions on company groups and their composition.

What should we be doing now?

In the countdown to VAT implementation, companies should consider taking some simple steps now to keep abreast of their obligations:

  • Plan ahead in commercial contracts – consider whether there are any provisions in your new commercial contracts which should reflect the imposition of VAT, especially if they will run past 1 January 2018. In particular, clauses related to pricing should contemplate whether those prices are quoted exclusive or inclusive of VAT, and the basic mechanism for VAT recovery.
  • Existing contracts and terms of business – perform some due diligence on your existing contracts. Which contracts may be ongoing on 1 January 2018? Do you need to consider an amendment to any provisions in these contracts, and to any standard terms of business?
  • M&A/JV transactions - consideration should be given as to whether relevant agreements should now include specific obligations, warranties and indemnities, in relation to VAT.
  • Take professional advice – for example, if you are a supplier of potentially exempt or zero rated products or services, or in a sector likely to be affected the most by VAT (such as retail and real estate), take advice on how to mitigate the impact of VAT on your business.
  • Think about your invoicing systems – do they enable the addition of VAT to the invoice price to form a valid record of the payment of VAT?
  • Resourcing – do you need to hire additional staff to maintain VAT records and to take responsibility for VAT filings? As most parts of a business will be impacted by VAT, consider whether a committee or task force should be constituted, with representatives from each relevant part of the business, to focus on how best to manage the change in systems, processes and procedures.
  • Keep in touch with official announcements – the UAE Ministry of Finance's website is updated when new official information becomes available. It states that detailed information on VAT implementation will be available in the near future - https://www.mof.gov.ae/En/budget/Pages/VATQuestions.aspx#faq4

VAT – Is Your Business Prepared?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Prarthna Chaddha
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.