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How will the 5% VAT affect UAE consumers?

Posted on May 15, 2016 4:00 pm;

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By Aimee Mhaolcraoibhe 


With the implementation of VAT on the 1 st January 2018 at a 5% rate within the UAE will have an

immediate impact on residents, tourists and accounting or financial professionals as much as it will

on businesses. Although there is a list of 100 exempt items from VAT that encompass the daily

necessities, there will still be times where consumers will need to pay the tax on the goods and

services that they purchase. That said, experts have said that they do not expect the new VAT to

impact on sales at the 5% rate that is set, unlike countries such as the UK or USA where the rate of

tax is double that.


For consumers that take on car loans they will have to consider the extra result of the VAT on their

monthly payment, which may or may not change their decision making process and opting for a

more economical car, as the ongoing price of petrol will also be a consideration consumers will take

seriously. Since it is a flat rate consumers can expect to see the cost included in the price tag, so the

new price inclusive of VAT will be what is advertised for the product.


For tourists, the addition of VAT on purchases made in the UAE will at times result in double

taxation, as the tourist is also responsible for paying importation taxes at customs upon return to

their home countries. Since all GCC countries have agreed to adopt the new 5% rate of VAT on all

nonessential items by the 1 st January 2018 there will be a level playing field between countries for

attracting tourists looking to spend large. However, until the final date there may be a tendency for

tourists to opt for an alternate GCC country for holiday if they can beat the deadline in another



Residents and tourists in the UAE who buy high ticket ‘luxury’ items such as mobile phones,

televisions, laptops and vehicles will be the people who see the biggest change in their spending as

the 5% tax on nonessential items will be added to each sale. This may result in consumers deciding

not to buy the latest model laptop or mobile phone if their current model is still working. In this way

there could be less spending taking place unnecessarily or without a great deal of forethought!


For the accounting professional, the industry is about to explode with work. Businesses of all sizes

will be flocking to their local accountant or financial professional for advice in integrating the new

VAT requirement into their business. There will be many businesses that will look to a professional

to explain how they are supposed to comply with this new law, so it is more than likely that

accountants will find themselves taking on new work over the coming years. The size of accounting

and financial firms is likewise set to increase as existing firms take on new employees to cover the

increasing demand for services.

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