Posted by: dubaibizniz | May 12, 2008

The Tax Man Cometh.. or was he already here?

Value Added TaxThere is a lot of talk about VAT lately. Dubai Customs has been all over the news and radio, discussing their technical readiness to implement the VAT. When looking at their own website, the latest news item on the subject dates back to December 25, 2007 with a clarification about inaccurate reports in the media. Recently, they confirmed that VAT planning is on track.

VAT is essentially a more sophisticated version of the sales tax that takes the overhead away from the government and passes it on to the organizations and individuals involved at every transaction. I am not quite sure how that would impact the free zones though. How does it impact services. How do you put a ‘value added’ on services rendered? It’s a lot more clear-cut with products. I buy X for $1 and I sell it for $1.20, so my profit margin is $0.20. You can verify this information through receipts and purchase orders. Services on the other hand are not tangible, so how d you verify what the profit margin is?

My understanding is that in the free zone, we are exempts from taxes. Does it mean that we are exempt as long as we are trading within the free zone? Do I have to pay it to suppliers or charge my clients outside of the free zones?

Someone needs to clarify these things before they come out giving us a deadline and telling us all to just get on with it.

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Responses

  1. “Services on the other hand are not tangible, so how d you verify what the profit margin is?”

    If am comprehending correctly, tangibility is sort of irrelevant. The fee you charge clients is based on all costs/overheads + margin.

    Am not sure how UAE is going to implement taxation – and confused why Free Zones shall be tax free?

  2. Rosh: they still have to make something attractive about establishing a business in the UAE, and tax-free Free Zones is one way.

    Mind you, companies in the Free Zones get stung for money in other ways. Fees to do anything are exhorbitant now and the rents are obscene.

    It costs us double-triple more to maintain our DIC company (admin fees, rents etc) than it does to run our German-based sister company. We keep it going because we hope that one day our circumstances will enable us to come back to the UAE to live there again. Plus we have an excellent Jordanian software developer, worth his weight in gold, who we employ in the UAE company to work on our worldwide software development projects.


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