It has now been formally confirmed by the GCC Supreme Council that the UAE will be introducing VAT (Value Added Tax) with effect from 1st January 2018 at a rate of 5%.
Other countries in the GCC (Gulf Co-operation Council) will introduce VAT by 1st January 2019 as some require a little more time for the implementation.
The announcement was made at a conference hosted by the Ministry of Finance in Dubai and attended by Christine Lagarde, Managing Director of the International Monetary Fund who has been publicly pushing for this for some time.
The tax will be at a rate of 5% but it seems that it will operate more like a sales tax than like the system of VAT does in certain Western countries. It has been announced that 100 food items, as well as education and healthcare will be exempt from the new tax.
As with any sales tax this will have a higher impact on the lower paid as a higher percentage of their earnings is spent on essentials such as clothing, petrol and food. Whilst this has been expected for some time, the formal announcement is not being well received. There will be costs for implementation and higher prices may well be the final straw for expats who are already struggling financially. Will this lead to an exodus of expats? Time will tell.
Update: UAE Minister of Finance Obaid Humaid Al Tayer has insisted the UAE government is not considering income tax so we need not be concerned about that for the time being.