The UAE’s taxation environment is one of the most lenient in the world, and as such it attracts investors to form and operate business in the country. Under the constitution, the federal government has jurisdiction to legislate in relation to the UAE’s taxation system, but no unified tax law has been enacted to date. Alternatively, the seven emirates may enact their own tax decrees.
Corporate
Under the Sharjah Tax Decree, taxable corporate entities operating trade or business are: companies engaged in oil and gas production, which pay corporate tax based on the rates specified in their respective concession agreements, with oil firms also paying royalties on production; and branches of foreign banks pay tax at a flat rate of 20% on annual profits, which is calculated on audited financial statements.
Other industries are not liable for corporate taxes. Moreover, industries which are formed, organised and operating within the free zones are exempt from taxes. It is worth noting the following with regard to tax laws in the UAE, and the same applies to Sharjah:
• Income tax: The UAE does not levy income tax on individuals and currently has no plans to do so.
• Withholding tax: The UAE does not levy withholding tax and has no plans to introduce this at present.
• Capital gains tax: In the UAE capital gains are taxed as part of business profits of the taxpaying establishments. Thus, there is no capital gains tax at present.
Excise Tax
Federal Decree Law No. 7 of 2017 on Excise Taxes imposed levies on some goods deemed harmful to health or the environment. This included carbonated drinks, at the rate of 50%; energy drinks with ingredients such as caffeine, taurine, ginseng and guarana, at 100%; and tobacco and tobacco products, at 100%. The main aim of imposing excise taxes to these products is to lessen the consumption of such products, while also raising revenues for the government to fund public service projects. Registration under the excise tax system is mandatory for businesses engaged in the import of excise goods into the UAE; the production of excise goods where they are released for consumption in the UAE; the stockpiling of excise goods in the UAE; and lastly, anyone who is responsible for overseeing an excise warehouse or designated zone.
Value-Added Tax (VAT)
Federal Decree Law No. 8 of 2017 on VAT was introduced in the UAE on January 1, 2018 at the rate of 5%. VAT is a consumption tax imposed on the basis of consumption of goods and services. It is also an indirect tax, meaning consumers are ultimately liable for VAT since it is already part of the purchase price. Under the VAT Law, it is mandatory for a business to register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of Dh375,000 ($102,000) per year. Registration is optional if a business’ supplies and imports are less than Dh375,000 ($102,000) per year, but exceed the voluntary registration threshold of Dh187,500 ($51,000). VAT will apply to all goods and services, save those expressly excluded by law, including tuition fees, medical fees, medicine fees, surgery costs, salaries and those with exemptions, such as goods and services in free zones.
Property
Sharjah’s real estate sector will be significantly affected by the implementation of VAT. The first supply of a new residential building within the first three years after its completion shall have VAT zero-rated. All subsequent supplies shall be exempt from VAT, even if the transfer is within the first three years. Commercial properties are subject to 5% VAT, while mixed-use buildings will have a special VAT treatment; residential parts of a building shall be treated as zero-rated or exempt based on whether it is a new supply or a subsequent supply; and commercial parts of a building are subject to 5% VAT. Based on report estimates, the implementation of VAT will generate some Dh12bn ($3.3.bn) worth of revenues in 2018 and roughly Dh20bn ($5.4bn) in 2019.
OBG would like to thank Al Farouk International contribution to THE REPORT Sharjah 2018
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