x Abu Dhabi, UAEThursday 21 September 2017

UAE's VAT to be added onto shelf prices and not at checkouts

Experts respond to landmark law that paves the way for 5 per cent tax this January

Experts predict a rush to buy big ticket goods before the new tax is introduced in January. Shoppers at Mall of the Emirates in Dubai. Pawan Singh / The National
Experts predict a rush to buy big ticket goods before the new tax is introduced in January. Shoppers at Mall of the Emirates in Dubai. Pawan Singh / The National

The UAE's new valued added tax will be included in price stickers and advertised prices - not as extras at the checkouts - experts have said at they responded to the landmark law issued this week.

The model will follow the system seen in Europe and in contrast to the United States, where shoppers are hit with the tax at the point of purchase.

"Consumers will be happy to hear that prices displayed are deemed to include VAT, like the United Kingdom and unlike the USA," said David Daly, a chartered accounted in the UAE and the UK.

He said the so-called Executive Regulations that will set out in further detail in the coming weeks "will address any exceptions".

Financial experts still await clarity on how VAT will be implemented in the country's free zones.

On Sunday, the President, Sheikh Khalifa, approved the main VAT tax law that sets out the legal framework for the collection of tax from January 1, 2018.

Stuart Halstead, indirect tax director at Deloitte Middle East, said there should be few surprises for consumers, given that consumers will not pay tax on education, basic healthcare and rent.

“No - there are no surprises; much of this has been well-advertised by the Ministry of Finance and Federal Tax Authority in advance," said Mr Halstead.

"It is nevertheless tremendous to see the law issued. The associated regulations, which will contain more information, will I am sure be awaited eagerly now.

"It's an example of a broad-based, low-rate VAT design and in that respect is an excellent platform for the future. Many legacy economies struggle to achieve these design parameters; the UAE is very much amongst the most advanced VAT jurisdictions in this respect."

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The law makes a distinction between what is entirely exempt and what is 'zero-rated'.

Consumers are not taxed on either.

Zero-rated means businesses can reclaim any tax they pay suppliers from the government, whereas exempt means they cannot.

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Deloitte outlined the following guide:

From a consumer perspective, the focus of many is on:

Food - standard rated

International air transport - zero rated

Residential lets and second owner purchases - exempt

First sale and lease of residential property - zero rated

Education - private (up to higher education) and state education will be zero rated.

Healthcare - heavily zero rated

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When VAT is introduced in January, Mr Halstead said consumers should ensure they are not being unfairly charged.

He said: "Not all businesses will be able to register for VAT. Non-registered businesses cannot impose an amount by way of VAT on sales.

"Consumers should check to ensure that when they are charged VAT, the supplier is in fact registered for VAT, and that the rate of VAT charged is not more than 5 per cent."