The move is in line with the plans set out by all six members of the Gulf Cooperation Council to diversify government income and reduce each country’s reliance on crude oil exports.
The new UAE law is “an all-encompassing legislative framework that lays the groundwork for the UAE’s plan to implement taxes as a means to ensure sustainability and diversify the government’s revenue streams,” said Sheikh Hamdan bin Rashid Al Maktoum, minister of finance and chairman of the Federal Tax Authority (FTA) in a statement.
The new VAT will impose the standard rate of 5% on all fee-based financial advice but core financial products, such as credit and securities transactions will be exempt.
The tax will not apply to the sale of life products but all non-life insurance products will be subject to the standard rate of VAT.
Islamic financial products will be treated equivalent to other financial products under VAT.
Investment in gold, silver and platinum will be zero-rated.
The law requires all UAE-based businesses to keep accurate records for five years, and also sets penalties for non-compliance.
“The UAE is committed to meeting the most stringent international standards,” bin Rashid said.
“We are working to establish an optimal legislative and executive environment to ease the nation into the VAT and excise tax systems,” he said.
The Tax Procedures Law also establishes a register of tax agents who may interact with the FTA on behalf of taxpayers, specifies the basic requirements for appointing said tax agents, and sets the standards for maintaining confidentiality by the Authority as well as its officers.