According to local media reports, Obaid Humaid Al Tayer, UAE minister of state for financial affairs, said the tax will not exceed 5% and will apply throughout the Gulf Cooperation Council (GCC) countries from the beginning of next year.
The tax will not be applied to 100 items, but no details have yet been revealed as to which products and services will be exempted.
Governments across the Gulf have been looking at fresh ways to raise money as low oil and gas prices open up big deficits in state budgets.
It is hoped that the introduction of VAT will be a step towards recouping lost revenue.
In November last year, the UAE ruled out the imposition of any income tax on individuals as part of its quest to seek alternative sources of revenue to counter the impact of falling oil prices.
The International Monetary Fund has been urging the Gulf states to introduce radical tax and spending reforms to tackle the growing budget gap and in November 2015 called on Saudi Arabia and the United Arab Emirates to introduce a value-added tax as soon as possible.
The GCC member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
