Did you know that Value Added Tax (VAT) is for most Western European governments its biggest source of income?
What are the advantages of VAT?
1. It is a tax that the taxpayers do not notice easily. Rising prices can be blamed on business.
2. Businesses will do the record keeping and collection for the government, so the related costs are shifted to the private sector.
3. Enforcement is outsourced too: the system is self-enforcing since there is no interest in a seller not charging VAT because that would mean the related input VAT cannot be recovered.
4. It doesn’t cost businesses anything (because they can just pass the cost on to consumers).
Or, at least, this is the list that the various intergovernmental organisations (the OECD, IMF, G20 cs) and a plethora of “non-governmental” organisations which try to “educate” the few VAT-free (and sales tax free), less enlightened, nations in the world will give you.
The first three are outright cynical reasons; the last one reveals an ignorance of the basic functioning of the price mechanism.
Did you know that there is no VAT in the UAE?
These organisations will also be happy to provide some cynical implementation advice: start with a high VAT-free threshold, so that most people will think they are not affected. And then gradually lower it.
We know. These educators do hit the shores of the United Arab Emirates (UAE) occasionally. The UAE is blessed with no VAT or sales tax; along with the other Gulf Cooperation Council (GCC) countries and a handful of other countries (such as Hong Kong, Jersey and Gibraltar).
The absence of Value Added Tax in the United Arab Emirates not only contributes to lower consumer prices, higher salaries, and a leaner government; it also significantly contributes to the quality of the life of entrepreneurs. The absence of VAT in the UAE allows entrepreneurs to start lean, focus on their business, instead of focussing on administrative compliance and avoiding commensurate major penalties. This is of course not to negate the similar contribution that the absence of wage taxes, social security contributions, mandatory pension contributions, corporation taxes, capital gains taxes, withholding taxes, and personal income tax have. Many of our clients are entrepreneurs who have just had it with running a business in the West. They typically have worked long hours for many years, during which they have contributed millions of euros to their government’s coffers, but at the end of the road they are the one holding the (empty) bag. These people come here, and make the UAE into what it is: an affluent, vibrant, dynamic, and fast growing economy. A place where a businessman can focus on … well running his business.
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to discover which free zone companies we usually advice our clients. And more importantly, why.
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Read more about how to pick the right UAE offshore company for your business in our article: Different Offshore Companies In UAE