Alas! There are only a few days left to enjoy 2017- and a tax-free life in the UAE. Sorry guys, just like you, we wish we could postpone the introduction of the Value Added Tax (VAT) come 1st January 2018, but it is a reality that we must face.
What is VAT and how will it be applied in the UAE?
As you might be aware, VAT is simply a broad-based indirect tax that is imposed on various goods and services and is currently implemented at different rates in more than 150 countries. It helps to generate revenue for governments to maintain public amenities and also offering quality public services.
In the UAE, the VAT will be applied to goods and services in 3 main categories:-
- Zero-Rated. 0% VAT charge is applied to this category of goods and services. The UAE has included goods and services scheduled for export and international transportation services as well as investment-grade precious metals, specific education and health supplies and services. Newly constructed residential properties supplied within 3 years also fall under this category.
- 5% VAT. This will be the standard rate for VAT in the UAE that will affect consumers the most. The 5% VAT will apply to most transactional goods and services including but not limited to food, electronics, cars, fuel, clothes, entertainment, and communication services amongst other things.
- VAT Exempt. This category of goods are exempt from tax and will mostly affect corporate businesses as they have to bear any tax costs on their own without passing it to the consumers. Property for first-time buyers and residential leases, bare land, and local passenger transport are included in this category.
How will VAT affect your daily living?
Even though many are worried about this new tax, it might not necessarily upset their expenses and life by a huge margin because 5% is one of the lowest rates of VAT in the world compared to countries such as Norway, Sweden, and Croatia that impose a 25% VAT. For instance, if you used to spend AED 20 on a product, it will now cost AED 21 after the tax and you might not even notice the AED 1 added to it.
In particular, consumers in the lower income bracket might not feel the added expense because their expenses are often minimal and on the lower end. On the other hand, the middle-class consumers who earn more than AED 20,000 and often have bloated expenses are the most likely to be heavily affected by the VAT. Designer products and high-end entertainment services, amongst other luxury goods and services that these consumers indulge in, will now amount to higher bills.
Rent and Utilities
While rent will not be affected by the VAT, utilities such as water and electricity will rise with the 5% VAT and you should thus factor this into your monthly budget. If you intend to purchase property in the UAE and don’t know how this will affect you, this article will be an eye-opener.
Owning a car is about to become an expensive affair in the UAE as prices of new vehicles go up, so will the already high fuel costs are expected rise further after the additional 5% VAT. Furthermore, services such as parking, driver’s license, car registration and insurance will also be affected by the VAT. On the other hand, those who use public transport and international flights will remain unaffected because these services are exempted from tax. You can read more about how the VAT will affect the automotive industry here.
Food and Drinks
Foodies should be prepared to increase their meal budget. If your monthly food budget is AED 500, you might not feel the additional AED 25 after the tax. On the other hand, if you dine out frequently and you have a budget of more than AED 5,000, prepare yourself to feel the pinch of this tax.
If you have been eyeing that new iPhone, we suggest that you purchase it right now unless you want to pay more next year. Similarly, if you don’t have a monthly phone plan, it is best that you get it before January before it goes up by a few Dirhams.
Parents can breathe a sigh of relief because tuition fees are exempt from the VAT. Nonetheless, other expenses such as school uniforms, textbooks, and school trips will attract 5% VAT.
Clothes and Accessories
Bad news shopaholics and fashionistas: VAT might just dent your pockets especially if you love the high-end designer stuff. You will have to either be savvy with online shopping or start looking for steep discounts during sale season because apparels, shoes, and accessories will now cost 5% more.
Financial services such as bank charges and electronic transfers will cost slightly more. Remittances to your home country will cost more because of the service charge as well.
You might be forced to cook your own meals and play video games more often. Dining out, staycations and visiting parks will also be more expensive as they will attract 5% VAT. Tourists will not be exempted either as they will also be charged VAT on their hotel bookings and other taxable goods and services.
Ultimately, life in the UAE will become a little more expensive but how about some good news? All used goods sold between private owners are fortunately tax-exempt. We got you covered, find affordable stuff on dubizzle anytime!
Download the dubizzle app and find VAT-free deals on the go!