The United Arab Emirates has traditionally been a tax-free economy for years. However, recent economic developments have seen the nation diversifying its revenue source by introducing a set of tax policies and procedures. As an economic sustainability measure, the system introduces a new excise tax and Value Added Tax that would generate additional income for the government. Taxation coming to Dubai, the UAE’s economic hub, could impact various industries in the nation.
New Taxes on Services and Consumer Goods
In October, new excise taxes on certain products were applied by the local tax authority. Products covered by the new regulations include cigarettes and alcohol. Moreover, the UAE Ministry of Finance had also announced that a Value Added Tax on non-essential goods will take effect in January 2018. The implementation rate will be at 5 percent, with exemptions for basic goods and services such as food and healthcare.
Not all businesses will be impacted by the VAT in the UAE. Local taxation policies set the limit for companies with revenues exceeding AED 375,000 on an annual basis. Those who fall under this category must register before the VAT takes effect next year. To facilitate the registration process, the Federal Tax Authority has made it possible for companies to register online.
Implications for Property Development
Dubai has been the center of UAE’s finance, tourism, and technology sectors. Dubai is also booming, in terms of real estate development. While the new tax laws include provisions for exempting first-time residential property sales, commercial Dubai property sales and purchase fall under the taxable category.
Residential property leases will not be affected by the tax changes. However, commercial rentals will be subject to the 5 percent tax. Dubai title deed and registrations will eventually reflect the changes once the VAT kicks in next year.
The implications of the new tax laws to the practice of property gifting have yet to be determined. Dubai property gifts occur when a relative inherits some type of land or real estate from another family member. The practice is subject to property transfer laws.
The landmark law introduces new mandates and would require local businesses to keep up with international taxation standards. The law also empowers the local tax authority to conduct audits, as needed. With these recent developments, industry pundits are closely watching how the new taxes would impact the UAE economy in the long run.
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