Dubai Moves Closer To VAT

by Lorys Charalambous, Tax-News.com, Cyprus

20 March 2006

The Dubai Customs Department said recently that it is studying the implementation of non-direct tax (ie sales taxes or VAT) in the Gulf Co-operation Council region.

The study, being conducted by Dubai Customs in association with the International Monetary Fund is closely studying practical aspects of implementing non-direct tax systems in GCC countries and is in the process of identifying legal procedures and setting a timetable for the implementation of the new system, said director general Ahmed Butti Ahmed.

The GCC needs to find non-oil revenue sources to make up for the loss in customs revenues that will be an inevitable result of implementing free trade agreements currently under discussion and due to be implemented, notably with the EU.

Abdul Rahman Al Saleh, executive director business support and services, Dubai Customs and head of the task force conducting the study on VAT implementation, said: "The changes witnessed in the global and regional economic systems have required the UAE to adopt a fresh trade approach that is in line with the new economic reality. The UAE is seeking to sign mutually beneficial free trade agreements with several countries and influential economic blocks, and is already in discussions with the USA, European Union (EU), Australia and China. The proposed changes to the country's economic system will make the UAE ready for these agreements."

Last year, General Sheikh Mohammed bin Rashid Al Maktoum, at the time Crown Prince of Dubai and the Defence Minister of the United Arab Emirates (he is now the Ruler of Dubai) reassured Dubai's investors and residents that the authorities had no immediate plans to introduce new taxes in the emirate.

The reports were seemingly confirmed when Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai and UAE Minister of Finance and Industry told the Khaleej Times in a report that: “We are (still) under discussion (and) we have not decided yet. They are just bringing the idea (of levying tax).”

Moreover, the revelation by Shaikha Lubna Al Qasimi, the UAE's Minister of Economy and Planning in an interview with Reuters earlier this year that the government is studying a plan to introduce sales tax on tobacco and alcohol fuelled the speculation still further, with many observers interpreting the decision as a first step towards more general forms of taxation.

However, the Dubai ruler's words would appear to suggest that the emirate will at least remain free from income taxes for non-oil firms and individuals for the foreseeable future.

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