House rents set to rise in UAE after law on 5 per cent VAT passed

Business owners and landlords in UAE must pay a five per cent value-added tax (VAT) starting January 2018, the Federal National Council (FNC) announced on Wednesday in Abu Dhabi.

The FNC approved the draft law, which serves as a legal framework and organises all the regulations of taxes, which aims to generate revenue for the federal government and enabling sustainable economic growth, Khaleej Times reported.

  • Private businesses making Dh370,000 and more a year will have to pay VAT.
  • The tax is binding on landlords renting out properties as well, which could mean a rise in rents for tenants across the UAE.

Last year, the GCC countries, including the UAE, Saudi Arabia, Qatar, Bahrain and Oman, signed an agreement to implement a VAT of five per cent.

The GCC countries also agreed to introduce a ‘selective items tax’, including on tobacco, soft drinks and energy drinks.

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, the Minister of State for Financial Affairs.

Al Tayer said the law will be implemented in the UAE on January 1, 2018. However, all GCC members have until January 1, 2019 to implement the rule.

The minister said the effect of the VAT on people in general, including residents and consumers, will start with 1.3 per cent and will drop with time, whereas businesses will face 0.06 per cent, and 0.04 on gross domestic product (GDP) growth when implemented.

The minister said that by 2021 the aim is to generate 80 per cent of UAE’s economy by non-oil sectors, while the remaining 20 per cent generated by oil, as opposed to the current 80 per cent GDP.

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