On 1st January 2018 the Federal Decree-Law No.(8) of 2017, on Value Added Tax (VAT) came into effect in the UAE with further GCC countries due to follow suit in 2019. You can review the English version of this new law here.
What is the GCC?
Originally known as the Gulf Cooperation Council, it is a regional union consisting of all Arab states of the Persian Gulf, not including Iraq. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates are all members of the GCC.
So What Does it all Mean?
To summarise the change, import VAT will now payable in addition to any customs duty due on movements of goods into the GCC. This rate is currently set at 5% (01/01/18)
As will all VAT mechanisms there are various things which will determine how & when this paid or collected. For instance, if the importer of record is VAT registered a reverse-charge mechanism will allow the importer to ‘pay’ and ‘recover’ the import VAT at the same time, resulting in a zero impact on cash flow. Reverse charging is a common mechanism most notably used across the customs union.
Reverse charge is only applicable if purchases are made outside the zone(s) included so if all purchases are made at a local level, a reverse charge does not apply.
VAT on imports to the UAE and other GCC destinations will be applied on top of any duty charges.
The UAE is a large importer of goods and services and the additional VAT will need to be carefully considered by importers especially those importing goods no for resale as this will be an add to cost to the total landed value of the goods. The assumption should be made that VAT is applicable regardless of how you account for it after import.
The UAE is one of the GCC countries we offer duty calculations on with further GCC destinations to be added throughout 2018. The new VAT rate of 5% has been added to the UAE import data we hold.