The UAE is on track to implement VAT from 1 January 2018, according to an update from law firm Pinsent Masons.
Member states will than have until 1 January 2019 to implement the tax.
All indications are that the VAT system will be reasonably similar to that operated in the European Union, said Darren Mellor-Clark, a tax expert with Pinsent Masons.
Narrow exemption
There will be a narrow exemption for financial services, Mellor-Clark said.
Financial services remuneration by fees will be subject to the 5% levy, the UAE ministry of finance has confirmed. Effectively, this means that core financial products, such as credit and securities transactions will be VAT exempt.
However, financial advisory services are likely to be subject to VAT.
Additionally, life insurance will be exempt, but non-life products will be taxable.
Equivalence
Mellor-Clark added: “It is expected that VAT equivalence will be applied as between Islamic and non-Islamic financial products, thus allowing transactions in underlying physical commodities to benefit from the exemptions and reliefs granted to purely financial non-Islamic credit arrangements.”
Furthermore, “investment quality gold, silver and platinum will be zero-rated, largely relieving business undertaking such transactions from the burden of tax”.
