21 December 2017

VAT in the UAE – here’s what you need to know

Find out what the new tax means for your finances

Value Added Tax (VAT) is scheduled to be introduced in the UAE on 1st January 2018. If you’re wondering what it’s going to mean for you, read on for the lowdown.

What is VAT and why is it being introduced?

VAT is a consumer-based tax (meaning it’s borne by the customer) on the supply of goods and services. With a few exceptions, VAT will be payable on all consumer goods and services, meaning everyone will be financially affected to some extent. As it’s a consumer-based tax, the more you spend, the more VAT you will pay.

The introduction of VAT in the GCC is part of the World Bank’s initiative to provide governments with a source of income to spend on improving public services. As a result, each of the GCC states will be introducing VAT in 2018. Because each state has the discretion over which sectors are exempted, VAT will apply to different products and industries around the region.

How much is it and when is it being introduced?

VAT will be fixed at 5% and should take effect from January 1st, 2018. For example if you usually pay AED 100 for something, you will now be paying AED 105.

What is being taxed and what isn’t?

Most consumer goods and professional services will be subject to VAT. So expect the price of your weekly supermarket shop to go up, as well as local hotel stays and visits to the petrol station, plus services like air conditioning and business consultants.

So what are the exceptions? You may be relieved to know that essential expenses such as school fees, healthcare (except health insurance), rent, public transport (Dubai Metro, taxis, busses) and flights will mostly be exempt.

What can I do to prepare for it?

Now that cost of living has increased, it’s time to start planning! One of the most important things is to manage your finances ahead of and in 2018. Having a spending sheet to hand and updating it regularly allows you to track your spending. Keeping a close eye on where your money is going helps you budget for the future and see where those extra few pennies are being spent. It might also be worth seeing which of next year’s big purchases you can make before the end of December.

Apply for an RSA quote now and save money!

All insurance companies will also be liable for VAT, so there’s no better time to lock in your RSA Home, Motor, and Travel Insurance for the coming year than right now. Contact us for a quote today and guarantee your coverage without the tax.