Following the implementation of the Value Added Tax (VAT) starting from January 1 st 2018 VAT came into effect for the first time in the United Arab Emirates and Saudi Arabia at a rate of 5%.
There was a lot of nervousness about the introduction but overall things have gone well. Due to the stresses of the introductory period, the Federal Tax Authority in the UAE has been flexible in its penalty impositions, most notably waiving Late Registration Penalties until April 30, 2018.

The systems in each country are broadly EU-style, so should be recognisable to most foreign businesses. So far, however, the following areas have been ones in which businesses can suffer surprises:

• VAT registration for a foreign business in Saudi Arabia carries with it the need to register for Zakat (an Islamic levy on Saudi entities that can lead to costs of up to 45% of profits). This is not the case in the UAE, where VAT-only registration is possible
• The UAE has a number of very active “Free Zones” into which VAT-free importation exists in theory. However, businesses have struggled with obtaining this right in practice due to bureaucratic requirements
• There has been inclarity over whether a foreign entity with several branches in the UAE (a multi-branch structure is common due to the attractions of establishing separately in different Emirates or Free Zones) is a single taxpayer or several. This controversy is ongoing.

Based on an analysis conducted by Essentia Middle East, there have been implications for systems, infrastructure, skills and training among many other industries and some slowing of economic growth has been reported.