2018: VAT in the UAE

Posted on: 29th January 2018 in Dubai

In UAE, a new Value-Added Tax (VAT) of 5% has been a reality since the beginning of 2018. But what spending areas are affected by the new UAE VAT and which have escaped? For expat consumers, here’s a snapshot of the good news and the bad news – as well as a handy table provided by the UAE government.

Education

Good news: no VAT for “private and public school education (excluding higher education)” as well as for “nursery education and pre-school education”. Bad News: private universities in the UAE have been hit with the 5% charge, but “higher education provided by institution[s] owned by government or 50% funded by government” are to be charged 0%. VAT is to be charged on school uniforms, stationery, equipment and even ex-curricula school trips.

Healthcare

Good news: mainstream medical and dental services as well as medicines and supplies are unaffected. Bad news: targeted with the 5% rise are services “that are not for treatment and are not preventive (e.g. elective, cosmetic, etc)”.

Transport

Good news: Flying is unaffected. Bad news: Petrol at pump will be up by 5%. New cars to be eligible too.

Property

Good news: VAT is zero-rated for sales and rents in the residential sector, and then exempt altogether after the first sale/rent of a property. Bare land is exempt altogether too. Bad news: accommodation, sale and rent of commercial buildings and land (not bare land) get hit with the 5% charge. For land where a UAE citizen is building their home, VAT applies but is recoverable.

Financial Services

Good news: Exempt are credit interest, margin-based products, asset transfer and life insurance. Bad news: Hit with 5% VAT are “products with an explicit fee, commissions, rebate, discount or similar” as well as insurance and re-insurance. Speak to your IFA to see how this affects you and your financial plans.

Other consumer goods

Good news: A “basket” of food staples escapes the VAT. Bad news: Phone services are eligible for the new VAT as well as most consumer goods, specifically electronics and jewellery.

VAT: Zero vs. Exempt?

Both “zero-rated” products and “exempt” products attract no VAT. So what’s the difference? Giant global accountants PWC explain that generally, “the main difference between zero rate and exempt supplies is that the suppliers of zero–rated goods and/or services can still reclaim all their input VAT, but the suppliers of exempt goods are either not registered for VAT or, if they are, they cannot reclaim their input VAT.” On 10th January 2018, the Federal Tax Authority confirmed 20 geographical free zones in the UAE in which businesses would be exempt. Read the official UAE guidance on “Zero-rated” vs. “Exempt” here.

VAT: why?

“VAT will provide the UAE with a new source of income which will be continued to be utilised to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.” (official UAE statement) The Khaleej Times reports that the new VAT “will help the UAE government to generate an estimated Dh12 billion (around 0.8 per cent of GDP) worth of revenue in the first year.” Visit the official UAE VAT website here.