UAE draft law on corporate tax, VAT soon

Government working on creation of a federal tax authority.

Dubai — The UAE is making headway in setting up a federal tax system to bolster government revenues, a senior Ministry of Finance official said on Thursday.

The drafting of laws for introducing corporate tax and value-added tax (VAT) is expected to complete in the third quarter of this year.

“The drafting of the corporate tax law and the value-added tax law has been discussed with the local and federal governments,” Younis Haji Al Khouri, undersecretary at the ministry, was quoted by Reuters as saying.

He added that authorities were still evaluating the social and economic impact of the laws, but drafting was expected to be finished “very soon — within the third quarter of this year”.

The decision to work towards the introduction of VAT was taken by the GCC officials. In May, a meeting in Doha of the GCC’s Financial and Economic Cooperation Committee adopted a draft agreement on VAT, which is widely expected to be endorsed by member governments.

As per the Doha agreement, each GCC country is required to draft its own VAT law in the framework of the Gulf custom union principles.

According to Reuters, a UAE Ministry of Finance report released on Thursday said the cabinet had approved versions of the corporate tax and VAT draft laws. It said the ministry was working on the creation of a federal tax authority, but did not say when the body might start operating.

The six-nation GCC has been weighing the introduction of VAT since 2007 to broaden their revenue base, with negotiations happening jointly to avoid any one nation losing out in competition with others in the region.

However, the sharp reduction in oil prices recently could lend a further push to introduce the levy, given that most Gulf states are expected to record budget deficits in the coming fiscal year and are reluctant to pare back spending on infrastructure and social spending aimed at developing their economies and improving the lives of citizens.

The IMF has urged the UAE to consider introducing excise taxes and a uniform corporate tax for both local and foreign firms. At present there is little corporate taxation outside the oil sector, apart from a 20 per cent levy on foreign banks in Dubai.

issacjohn@khaleejtiems.com