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Abu Dhabi, UAESaturday 15 December 2018

VAT in UAE: Car and electronics retailers use deadline to spur sales before tax comes into effect 

Digital marketing push to encourage purchases of big ticket items before 5 per cent duty comes into effect

With VAT quickly approaching, many businesses are using the a pre-tax gimmick to entice shoppers. Suzanne Plunket / Reuters
With VAT quickly approaching, many businesses are using the a pre-tax gimmick to entice shoppers. Suzanne Plunket / Reuters

UAE residents are receiving emails and text message on their mobiles promoting big ticket purchases of cars and flat-screen TVs before value-added tax (VAT) comes into effect.

on January 1, a 5 per cent levy will be applied on most goods and services in the emirates.

One promotion, from Al Tayer/Premier Motors, offers potential customers 5 per cent cash back if they buy before December 20 from the high-end Maserati line. Emails from online retailers have used the pre-VAT idea as well.

Screen SMS
Screen SMS

“I don’t think VAT will have an impact for me [buying or not buying],” said Dubai resident Omair Saya. “Things are going to become 5 per cent more expensive, but I wouldn’t go out of my way just to save that.”

The UAE and Saudi Arabia will introduce VAT first in 2018, eventually followed by other GCC members. The UAE Tax Authority has published a detailed list of how value-added tax (VAT) will be applied to certain goods and services.

Businesses meeting a Dh375,000 annual revenue threshold must be registered for VAT in advance of January 1 or face fines.

Last week, the finance ministry released a document detailing a list of violations that would be subject to monetary fines. First, only VAT-registered businesses have the right to charge customers the levy.

Items that will be subject to the VAT include cars, electronics, mobile plans and apparel, just to name a few.

The 5 per cent tax will be added to the price of goods, but how will VAT be calculated for items that are on sale? The tax authority said that for any price reduction, such as “Buy one get one free” sales, the reduced price is how the levy is calculated - not 5 per cent more on the pre-sale price.

While more than usual holiday shopping may not take place during this month, earlier sales did benefit from higher volumes.

Souq.com founder and chief executive, Ronaldo Mouchawar, said that the company did see a big uptake for its “White Friday” sale (a spin on the American retail extravaganza known as Black Friday).

“We just finished our White Friday sale and we doubled business compared to last year in terms of units sold,” he said, adding that it was mostly big-ticket items such as televisions.

See the Federal Tax Authority's guide as to what is taxed and what is zero-rated or exempt:

The effect of VAT on sectors across the UAE. Courtesy of the UAE Federal Tax Authority
The effect of VAT on sectors across the UAE. Courtesy of the UAE Federal Tax Authority