UAE’s Ministry of Finance said registration for businesses for the upcoming value added tax (VAT) would begin in the second half of the year.
The firms with taxable supplies below Dhs375,000 but over Dhs187,000 will also have the option to register.
Tax is expected to become mandatory for this category after official implementation of VA on January 1, 2018. The ministry said the 5% rate would apply to supplies, goods, and services unless specifically exempted.
A federal tax authority will administer, collect and enforce taxes, perform audits and apply penalties in case of non-compliance.
Recently, UAE government’s Federal National Council (FNC) approved a draft law that requires business owners and landlords to pay a 5% value-added tax (VAT) starting January 2018.
Now, private businesses making Dhs375,000 and more a year will have to pay VAT.
There are currently more than 450,000 private owned companies in the UAE, and the number is expected to soon reach 600,000, which will see a growth in the annual GDP, said Obaid Humaid Al Tayer, minister of state for financial affairs.
The VAT on people in general, including residents and consumers, will start with 1.3% and will drop with time, whereas businesses will face 0.06% and 0.04 on gross domestic product (GDP) growth when implemented, the minister said.
The law will also provide the authority measures to address procedures for tax collectors, tax auditing, tax avoidance, violations and the penalties.
The passed draft law also stipulates that fines for those avoiding the pay their taxes should not exceed five times the value of the evaded tax.
Last year, the six Gulf Cooperation Council (GCC) countries, including the UAE, Saudi Arabia, Qatar, Bahrain, and Oman, signed an agreement to implement a 5 % VAT, despite administrative and technical challenges.
The UAE government expects around Dhs12 billion ($3.3 billion) of revenues from the tax in its first year. That would be about 0.9% of the UAE’s gross domestic product of $371 billion in 2015.