The UAE and Saudi governments have finally implemented the Value Added Tax (VAT) system on the 1st of 2018, after more than year of planning. Many business and individuals are still struggling to grasp how to handle this new tax system. The VAT was set at 5% in both countries and is expected to stay at that rate. This rate applies to almost every good or service one purchases daily, with the exception of certain specified items stated by each government.
The introduction of VAT has created some problems for businesses and employees in this upcoming year as you can imagine. In the UAE, the expected inflation rate is 4.6% while salaries are expected grow at just 4.1%, and adding the 5% VAT has created a problem for employers. Employers will need to find a solution to handle the dissatisfaction that will certainly arise from the higher living costs, as well as the higher business costs.
This tax has surprised many in the region, as it is the first sort of tax that has been introduced in this region of the world. Gulf countries were known for their tax-free perk but with the introduction of VAT, these two countries have become less attractive. However, the rate is still extremely below the global average of 5% and should not be a deal breaker whether for people currently living in the countries or planning to visit/move there.