UAE to establish Federal Tax Authority

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When the UAE government announced the establishment of a Federal Tax Authority (FTA) in October of 2016, two years ahead of the planned launch of 5% VAT (value added tax) in 2018, rumours started to spread that new personal taxes were also being introduced by the government.

Fortunately, the anticipations are not correct as the UAE believes in taking steps which will benefit the people first and then the government.

The UAE has no plans of imposing a personal income tax or introducing any new fees for its services, according to Youni Al Khouri, Undersecretary at the finance ministry.

Federal Tax Authority

Federal Tax Authority (FTA) is being established by the UAE’s government to catalyse the smooth transition from no-tax era to a 5% tax era (VAT).

Working as a facilitator, it will issue clarifications and guidelines to taxpayers, inspect records and documents of taxpayers, review the tax returns and audit reports, which will be submitted to FTA.

After thoroughly studying the economic and social impact of the corporate tax, the finance ministry is planning to take the studies to the cabinet for building a comprehensive tax regime.

Value Added Tax

For quite a few years, International Monetary Fund (IMF) has been convincing the GCC countries to boost their respective governments’ revenue by introducing taxes, corporate income taxes, excise and property taxes – Value Added Tax (VAT) is one such tax system, being introduced in the GCC.

During the first year of VAT’s implementation, it is estimated that the UAE government will generate more than Dh12 billion additional revenue. It will be introduced at the beginning of 2018 at 5%.

Any company, which is working in the UAE and reports annual revenues of more than Dh3.75 million will be legally obliged to register under the GCCVAT system,  undersecretary Al Khouri said.

During the first phase of the VAT implementation, companies which have revenues falling between Dh1.87 million and Dh3.75 million will be provided with the option of registering for VAT, he further elaborated. In the second phase of VAT, every company will be legally bound to register under the GCCVAT system, regardless of their revenue.

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