UAE outlines VAT threshold for firms in Phase 1

Registration mandatory for companies whose annual revenues exceed Dh3.75m while it is optional for those whose revenues range between Dh1.87m and Dh3.75m.

Companies in the UAE that record annual revenues over Dh3.75 million will be obliged to register under a Value Added Tax (VAT) system, and will accordingly be taxed, according to Younis Al Khoury, undersecretary at the country’s Ministry of Finance.

Companies whose revenues range between Dh1.87 million and Dh3.75 million will have the option to either register under the system or not during the first phase of rolling out the system.

The comments from the undersecretary came in a statement to Mubasher, the financial markets website and data provider, with Al Khoury later confirming the news to reporters.

He said that it will eventually become obligatory for all companies to register under the VAT system when it is rolled out in Phase 2, but that the ministry is still discussing a date for that.

Earlier this year, Oman’s Minister of Financial Affairs, Darwish Al Beloushi, told reporters that GCC countries have agreed to introduce VAT at a rate of 5 per cent in 2018.

UAE’s Al Khoury had earlier confirmed that GCC countries are yet to finalise their implementation policy, but they have agreed that the tax will not be applied to certain industries like education and health care.

Staple food items would also be exempted from VAT.

When VAT is introduced in 2018, the UAE is expected to generate around Dh10 billion to Dh12 billion in revenues from the tax in the first year of implementation.

The decision to introduce the tax comes after various organisations and economists, including the International Monetary Fund (IMF), recommended that GCC countries roll out the tax as a means of generating more government revenues.

It was highlighted even further as oil prices slid from their mid-2014 highs of around $115 (Dh422.4) a barrel to their January 2016 lows below $30, resulting in significant drops in government revenues.

In February 2016, the IMF said oil-exporting countries in the Middle East and North Africa lost over $340 billion in oil revenues from their budgets in 2015, amounting to 20 percent of their combined gross domestic product.