You’ve heard your business minded friends talk about it, heard it’s going to affect the business at your workplace – and also that it’s going to affect your day-to-day and personal finances as well. But what exactly does this mean for you, as a consumer? VAT stands for Value Added Tax, and the new system was rolled out across the UAE on January 1, 2018, at 5%. The experts at RSA Insurance want to help you demystify it, so read on to find out how it could affect you and your daily spends.
First things first – the question on most UAE residents’ lips will be, “Is it going to affect my salary?” With tax-free salaries being a huge part of the appeal from working in the region until now, it’s easy to understand why this is a concern. But don’t fret – the introduction of VAT will not affect your income, in the sense that even after its implementation, there will still be no income tax on your salary. This includes bonuses, which will remain VAT-free. One surprising factor you may need to consider, however – currency exchanges will now be bearing its costs, with exchange houses passing that cost onto the customer, which means that you’ll now have to pay a VAT charge on top of the exchange rate and fee when you do convert cash into another currency. The cost of financial services will now also include VAT.
F&B and Entertainment
While many items as you shop – yes, including at the grocery store– will now have VAT added onto their cost, according to the government up to 100 food items will be exempt. However, dining out – which includes both food and beverage costs – will now be taxed with VAT. Entertainment will also be taxed with it, including cinema and theme park tickets, hotel stays, dining-out vouchers, and club memberships (such as your gym, or your beach club, for instance).
VAT costs will now be included on cars – purchases and car rentals – as well as taxis and buses, and fuel prices, but it won’t affect public transport, or airline tickets. However, this does not include other costs associated with travel, such as excess baggage charges, cancellation or no-show fees, or additional on-board food and beverage costs.
Most retail items will now include VAT, including electronic items, clothing and shoes, jewellery (and gold, unless it’s of a purity of 99% or more), cosmetics, and more.
Utilities, Education, Housing
School fees – except for those for nursery, pre-school, elementary school, and government-funded universities – as well as uniforms and transport, will now include VAT, as will your water and electricity bills, and your TV, internet, and phone bills. Residential tenants will not have to pay VAT on rent (unless the residential apartment is taken on lease), although commercial tenants will. Healthcare will not include VAT, nor will pharmacy items as long as they are approved by the UAE Ministry of Health.
When it comes to insurance, this depends on the type – life insurance is exempt from VAT, but the tax will be applicable on car insurance, home insurance and health insurance (although this cost can be borne by your employer if they are providing the insurance), while travel insurance may also be taxable.