Value Added Tax (VAT) is a tax on consumption levied in the United Arab Emirates by the National Government. It was introduced on January 1, 2018. It is administered and collected by The Federal Tax Authority, primarily through the Federal Decree Law No (8) of 2017 on Value Added Tax. VAT is levied on most goods and services provided by registered businesses in the U.A.E. and some goods and services imported from outside the U.A.E. and G.C.C. Countries.
Under Federal Decree Law No (8), the standard rate of VAT in any state in the cannot be lower than 5%. Each state may have up to two reduced rates of at least 5% for a restricted list of goods and services. For more information about Value Added Tax, please contact us.
The default VAT rate is the standard rate, 20% since 4 January 2011. Some goods and services are subject to VAT at a reduced rate of 5% (such as domestic fuel) or 0% (such as most food and children’s clothing).
VAT is an indirect tax because the tax is paid to the government by the seller (the business) rather than the person who ultimately bears the economic burden of the tax (the consumer). Opponents of VAT claim it is a regressive tax because the poorest people spend a higher proportion of their disposable income on VAT than the richest people. Those in favor of VAT claim it is progressive as consumers who spend more pay more VAT.