In a media briefing held at the Raffles Hotel, Dubai on 2nd June, Ahmad Butti Ahmad, Director General of Dubai Customs, which has been studying the VAT proposals, confirmed that draft laws have already been submitted to the UAE’s federal authorities and are awaiting approval.

He also announced that the report on the level of VAT to be used in the UAE recommended a 3% threshold, and that the final decision is to be taken by UAE’s federal authorities.

The new VAT system would replace revenues currently being raised by customs duties, but Butti told the reporters that the government had yet to decide on a date for the switch-over to take place.

However, he revealed that the timing would likely be aligned with the UAE's comprehensive economic strategy.

“The revenues of the new VAT system would match the customs duties which would be canceled when the new system is implemented. Therefore, the new VAT system would not have any negative effect on the inflation rates in UAE.” Butti explained.

Butti believes that all GCC countries will implement VAT systems eventually, but he explained that Dubai was more ready to introduce VAT than most of these countries because it had initiated a methodology in 2006 to implement such a tax system.

“(The) VAT system is the best taxation system in the world, and by being highly transparent and accurate, this system would bring a lot of benefits to the UAE," Butti argued, adding that: "This system would not have any negative effect on foreign investments because foreigners are used to such taxation systems and they prefer to operate under the umbrella of this system instead of being subject to unclear taxes.”

He went on to point out that VAT is already in use in 145 countries around the world, and that over the past years it has been proven that VAT is the most transparent and fair system in the world.