Impact of New Tax Law on UAE Economy

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Impact of New Tax Law on UAE Economy

Dubai – United Arab Emirates (UAE) has issued a new tax law under Federal Law No.7 of 2017. It is set to lay a foundation for the entire UAE tax system. This tax law was introduced for a sustainable growth of UAE economy and also acts as a crucial step to diversify the government’s revenue system. The Value Added Tax (VAT) is set for both UAE based businesses and consumer products. UAE will follow the new tax system to meet the strict international standards. Penalties are also included for non-compliance of the tax procedures.

UAE – SME Sector Impact of Tax Law on Businesses

Experts and tax consultants predict that the UAE based companies might face cash flow issues once the tax system is implemented. Workshops are being organized by federal tax officials to educate and prepare business owners / managers to the new tax system. In particular, businesses will need to be more transparent with their financial accounts as well as scrutinize their operations, analyze their suppliers for goods / services in a bid to have a complete understanding of the tax policies and comply with it.

On the other hand, the taxes will not have any effect on the consumer purchase trends. Although non-essential and luxury goods such as tobacco & beverages, gold and jewelry will be subject to value-added tax (VAT) of 5 per cent, as well as excise tax according to experts. The implementation of VAT will commence from January 1, 2018 in UAE. The tax margins that are imposed on goods/services will be likely to be passed on to the consumers, who are believed to have one of the best purchase powers in the region.

UAE – Benefits of Tax Implementation

Although there will be several short term offset because of the new tax system, in the long-term it will benefit both UAE and the businesses. It will help UAE to regulate informal economy enforcing cash-based businesses to adhere to accounting and book keeping practices. Furthermore, the taxes are expected to increase the GDP growth, create jobs within accounting, taxation & IT and at the same time enable the government to continue spending on economic, social and infrastructure projects.

Tax Impact on UAE & Dubai Economy

Dubai and UAE remains to be a strong economy driven by continuous spending on infrastructure projects as well as strong initiatives taken by the government to diversify in non-oil sectors. According to Frost & Sullivan’s research report, non-oil sector contribution is expected to rise by 90 per cent in 2025. EXPO 2020 and other mega projects relative to education, real estate, retail, tourism, healthcare and IT will be the main drivers for future growth within the non-oil sectors.

Investment Opportunities in Dubai and UAE

Strong government will to reform and overhaul the system will act as a natural pull for foreign investors to make their presence in Dubai and UAE. Moreover, UAE’s strategic location and geographical proximity to other major emerging markets in Middle East, Africa and South Asia adds further to its attractiveness, as the country could be favorable partner for international ventures to tap into new markets.

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Waqas Hassan
Waqas Hassan
The author is the Managing Director - Research Konnection Dubai. Konnect with the author on waqas@researchkonnection.com if you wish to know more about the investment opportunities in UAE.
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