With an objective to move towards the vision of reducing the dependency on oil and other hydrocarbons as a source of revenue, the United Arab Emirates (UAE) and other Gulf countries implemented Value Added Tax (VAT) from 1st of January 2018. Implementing VAT in UAE and Gulf countries will have major economic reform, as they have minimal tax systems and no tax on income.
United Arab Emirates (UAE) and Saudi Arabia which had tax-free lifestyle, now have imposed 5% VAT on goods and services. The VAT in UAE will be applied to items like food, water, clothes, electronics, electricity bill, gasoline, phones as well as hotel reservations; with possibilities of exemptions and zero rating for some supplies and incentives for companies operating in certain sectors or free zones. For the VAT in UAE, “VAT is expected to yield Dhs 12 billion in the first year of its implementation and up to Dhs 20 billion during the second year,” Sultan Al Mansouri, minister of economy, told The National earlier this year.
As the government gets ready with VAT, hospitality industry needs to gear up to comply the softwares with the new tax regime. With the implementation of VAT in UAE and other Gulf countries, we’ve equipped our solutions to comply with the new tax. Hoteliers and restaurateurs in UAE now can levy VAT on the services they provide to their guests.
What is Value Added Tax (VAT)?
VAT abbreviated as Value added tax, is an indirect tax levied on the consumption of goods and services. Businesses and the registrants enrolled under the VAT law need to remit the tax to the government while supplying goods and services.
VAT applies more or less to all goods and services that are bought and sold for use or consumption. Thus, goods which are sold for export or services which are sold to customers abroad are normally not subjected to the VAT.
VAT in UAE and Gulf and the current taxation scenario
VAT is a multi-stage tax which is levied at each step of production of goods and services which involves sale/purchase. For VAT in UAE, the tax levied in a supply chain at each stage and is collected by businesses on behalf of the government and will be incurred and paid by the end consumer. VAT in UAE and Gulf will be applied to taxable goods and services at the rate of 5%. However, basic consumer goods, health care, and education, etc are exempted from taxation.
Here is the tariff range for businesses who can register for VAT in UAE:
| Annual Turnover | What you can do? |
|---|---|
| Businesses with annual turnover > AED 375,00 | Will have to register for VAT |
| Businesses with annual turnover over > AED 187,000 and bellow < 375,000 | Have an option to register for VAT |
Moreover, businesses that provide health and education services can reclaim VAT value from government.
Whereas, failure by businesses to comply with and keep the required records and other information as per the new law will incur a fine.
Sectors under Zero-rated
VAT will be charged at 0% in respect of the following main categories of supplier:
- Exports of goods and services to outside the GCC.
- International transportation, and related supplies.
- Supplies of certain sea, air and land means of transportation.
- Certain investment-grade precious metals.
- Newly constructed residential properties.
- Supply of certain education and healthcare services.
Sectors under certain exemptions
The following categories will be exempted from VAT:
- The supply of some financial services.
- Residential properties.
- Bare land.
- Local passenger transport.
Impact of VAT on Hospitality Industry
Hospitality and tourism are two of the most promising sectors of the UAE economy, contributing a significant amount to the country’s GDP. To examine the effect of hospitality and tourism industry, it is important to consider several aspects.
UAE is one of the countries in the GCC, ahead of the curve in terms of hospitality investment.
Ordinarily, the development of the sector has always been a priority for the UAE government as it accounts for 51% of overall hotel rooms, and therefore, any negative impact from VAT is a legitimate concern.
The sector has two types of customers, business-to-business (B2B) and business-to-consumer (B2C). It is expected that most of the B2B customers fall into the category of ‘VAT registered business’ and thus the VAT should not have any expensed cost. For the B2C customers, there may be a minor impact as this will only mean that their offering is 5% more expensive.
Currently, hotels already have a 10% Service charge and a 10% Municipality fee to their room rates. Serviced apartments also have a room tax of Dh15 per day for four-star hotels, while Dh20 per day is added to five-star properties.
The industry is ever evolving, with lots of advancements happening every single day, and that, hoteliers will bring in new value streams for the clients to ensure that the tax impact doesn’t become a distraction.
Role of Technology: providing VAT compliant softwares
The hospitality industry is a dynamic environment experiencing constant evolution. Over the years, the industry has witnessed several changes at an unprecedented pace. Applying the latest technology to provide the best services to the new VAT regime in the hospitality sector imposed.
The scope of VAT in UAE is not limited only to tax calculations, it is also expected to change the way millions do business in UAE. From a compliance perspective, businesses that work with automated softwares will need to update their systems with the new VAT laws. If a hotel doesn’t have correct and proven VAT system in place, it may not be able to meet all statutory requirements resulting in incorrect tax calculations.
As a business owner or manager in the hospitality sector, you need to implement a hotel software that gets customized according to changing trends and laws. This will make room for you to focus on running your business and providing better services and compliance with the VAT policies. Also, if you’re an F&B business owner, consider a tool that will assist you to navigate your way through VAT laws.
With the changing tax laws in different regions, eZee solutions are always ready to comply with.
For VAT in UAE and Gulf, our softwares are VAT ready to help hotelier and restaurateur to generate VAT-compliant invoices and reports, it implements tax structure as per VAT requirements and also calculates VAT payables.
To sum up, VAT in UAE and Gulf countries is not just an accounting change, but an overall business change as it affects every business function from marketing to finance. Companies within the hospitality segment should keep in mind flexibility and adaptability combined with a vision of customer needs, and make informed business decisions ahead. Keeping pace with coming changes, our hotel PMS software and restaurant POS system are VAT-ready, ensuring that our users stay updated with the changing tax laws in every region.
Check out our VAT-ready hotel software:
Note: All the information given on this page is subject to the notifications passed by GCC.