Overview on VAT in the GCC
VAT registered businesses that supply goods and services are subject to VAT at either the standard or zero rate from 1st January 2018.
The mandatory registration threshold shall be AED 375,000. Unless supplies of goods and services are zero rated or exempt, they will be subject to VAT at the standard rate. The standard rate will be 5% across the GCC.
VAT on Household Products
It is common for many countries across the world to exempt some basic food items and groceries from VAT. Luxury items such as jewellery and cars are usually subject to a VAT increase.
Basic food items such as bread, milk and water will be charged at 5% VAT in the UAE from 1st January 2018. This will have a great impact on the low paid households for example taxi drivers, construction workers, restaurant staff, beauticians’ and cleaning staff. Families and individuals can do a bulk shop of non-perishable items before 31st December before the VAT increase starts to lower the impact.
Childrens clothes are also exempt from VAT in many countries but will be charged at 5% in the UAE. This will have a greater impact on larger families in the UAE including higher paid expats. Many low paid employees have come to work in the UAE without their families therefore the impact of this will be very low. Expats can pack clothes for their children when they are coming to the UAE and bring larger childrens clothes to replace them when they have their annual holiday each year.
Medical and Dental Treatment
Healthcare services aimed at treatment of humans including medical and dental services are charged at 0% VAT therefore there will be no impact for the people living in the UAE. There is no need for expats to travel back to their home country for treatment.
The sale and rent of residential buildings (subsequent to first supply) is exempt from VAT. This treatment is similar to many countries across the world and is good news for the UAE.
Domestic and International transportation by air, sea and land is exempt and 0% therefore no VAT will be charged on these services. Family holidays abroad will not be affected and therefore no impact to families living in the UAE.
VAT will be charged on Jewellery at 5% in the UAE. This is in line with luxury products in other countries.
Petrol from the pump will be charged at 5%. This is in line with other countries around the world. The UAE benefit from lower fuel prices than many other countries and therefore the effect may not be so great for western expats.
Tobacco, Caffeine and Sugary Drinks
These products have already been charged with an Excise Tax from 1st October 2017 and have increased significantly in price. The aim of this was to discourage consumers from using these products and to adopt a healthier lifestyle.
The purchase of cars will be charged at 5% VAT. Most car dealers increased their prices about a year ago when VAT was first being introduced. Consumers may be pleasantly surprised as car dealers may drop their prices by 5% in the New Year and then add on the 5% VAT which will in effect appear that there is no VAT impact.
To summarise, families should purchase non-perishable items before 31st December 2017 where possible. Children’s clothes can be purchased from their home country and can be passed down to siblings and younger family members. There is no need for expats to fly back to their home country for medical and dental services. And there is no rush to buy a car before 2018!
Sarah Ferguson FCCA MAAT AFTA MBA
Sarah Ferguson Tax Consultancy