The UAE and Saudi Arabia implemented value-added tax (VAT) on 1 January.

With a few exemptions such as school fees, the 5 per cent VAT applies to a wide range of products and services, including fast-moving consumer goods, financial products, precious metals, hotel rooms and automobiles.

Most companies’ financial and accounting systems rolled over on the midnight of 31 December to apply VAT on all relevant sales transactions.

In the UAE, the price tags on products in retail shops were expected to have been updated to reflect the additional 5 per cent VAT by 07:00 on 1 January.

MEED understands the software update for some companies did not go without glitches. Some shops had to have sales or operations staff working overnight on 31 December to ensure transactions the following day would comply with the new VAT policy.

“I had to go to the branch office at 2 am on 1 January and then again at 12 noon to ensure the invoicing system was running smoothly,” a branch manager for an automobile distributor in Dubai tells MEED.

The introduction of VAT is part of the GCC governments’ long-term fiscal measures to diversify revenue sources and plug major budget deficits due to lower oil prices.

The UAE government has indicated it expects to generate an estimated AED12bn ($3.3bn) during the first year of VAT implementation.

The rest of the GCC states – Kuwait, Bahrain, Oman and Qatar – are understood to have deferred VAT implementation.

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