The VAT law still needs the final approval by the President before implementation.
According to the law, business owners (trade and services earning AED 370,000 or more a year) and landlords will be required to pay a 5% VAT starting from 1st January 2018.
95 essential items (staple food including 30 types of fish, bicycles, social services, essential service sectors such as healthcare and education) will be exempted.
VAT shall also be applicable on utility bills as well as mobile and internet bills.
Residential properties are taxable on the first sale, exempted on the subsequent sale, while rental is treated as exempt, which means the landlord is unable to add VAT on to the rent.
It is expected that supplies made by the companies operating in free zones such as JAFZA will not be subject to VAT. However, in all likelihood, it would apply to the supplies from the free zone to the mainland in UAE.
Where you are engaged in the supply of goods or services that are subject to VAT (including at the zero rate) you will be entitled to reclaim VAT you incur on costs. Where you are engaged in activities that are exempt from VAT and you cannot reclaim VAT incurred on costs, VAT will be a cost to your business.
Irrespective what you charge, the sale of the product will be deemed to include VAT.
The draft law stipulates that the fines for those avoiding taxed shall not exceed five times the evaded taxes.