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VAT starts from 1st January and here’s what you need to know

VAT stock image

Value Added Tax at five per cent comes into force across the UAE on 1st January. So what exactly is it and how is it going to affect us?

The UAE’s Ministry of Finance has put together the answers to some of the most frequently asked questions about VAT.

What is VAT?

Value Added Tax (or VAT) is an indirect tax. You might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.

VAT is one of the most common types of consumption taxes found around the world and is implemented in 150 countries.

Who pays it?

VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost, while businesses collect and account for the tax.

What is VAT used for?

Public services provided by the UAE Federal and Emirate governments – including hospitals, roads, public schools, parks, waste control, police – are paid for from the government budgets.

VAT will provide the UAE with a new source of income which will contribute to the continued provision of high quality public services into the future. It will also help government move towards its vision of reducing dependence on oil as a source of revenue.

What will VAT be applied to?

VAT  will apply to the majority of transactions of goods and services unless specifically exempted or excepted by law. All food and beverages will be subject to VAT.

What goods or services will be zero-rated or exempt from VAT?

school kids stock image VAT


Private and public school education (excluding higher education) and related goods and services provided by education institution, including school trips will be zero rated. However uniforms will be eligible for VAT at five per cent.


Preventive healthcare services including vaccinations and dental services are zero rated. Elective and cosmetic treatments are not.


Domestic passenger transportation (including flights within UAE and public transport) is exempt and international transportation of passengers and goods is zero rated.

Real estate

First sale/rent of residential building after completion of construction or conversion is zero rated.

Financial services

Interest on forms of lending (including loans, credit cards, finance leasing) is exempt from VAT.

Investment gold, silver and platinum, jewellery

≥99 per cent pure and tradable in global markets is zero per cent rated.


Activities undertaken by employees in the course of their employment, including salaries, will be zero rated.

Supply of goods between businesses in designated zones are considered to be outside of the VAT system.

The same applies to work of listed charities and societies.

How will it affect my cost of living?

The cost of living is likely to increase slightly, says the government, but this will vary depending on the people’s lifestyle and spending behaviour.

Does the introduction of VAT mean income tax will follow?

The UAE Ministry of Finance says: “As per global best practice, the UAE is exploring other tax options as well. However, these are still being analysed and it is unlikely that they will be introduced in the near future. The UAE is not currently considering personal income taxes, however.”

We’re not financial advisors! For more information on VAT, check out and


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