An official statement carried by the Emirates News Agency provided an update on value-added tax discussions in the UAE. The statement confirmed that the UAE has been studying the implementation of a draft VAT law.
Several feasibility studies were completed, with the latest taking place in early 2015. The draft law remains pending due to the absence of a final agreement between GCC countries on the tax rate and a list of tax exemptions.
The government also announced that it was studying increasing taxation of corporations in the UAE and that firms would be given one year to prepare for any changes.
The statement suggests imposing VAT would require coordinated agreement and implementation across the GCC to prevent competitiveness from eroding for first movers.
Once this happens, the UAE would give corporate entities 18 months from the enactment of the law to prepare to meet their tax obligations.
VAT introduction would help increase non-oil fiscal revenues and decrease fiscal vulnerabilities in a low oil price environment.
The International Monetary Fund estimates a yield of 2.7% of non-hydrocarbon GDP as a result of introducing a 5% VAT tax rate, using the 2013 final consumption amount.
