INTERVIEW: VAT impact on UAE tourism negligible, even without refund

 

With details about the United Arab Emirates’ new Value-Added Tax (VAT) regulations yet to be finalized, the country’s tourism industry is awaiting details on whether tourists will be refunded or not

The UAE government has yet to issue its executive order detailing procedures and systems for VAT refunds to tourists. However, the expected impact on the industry has been described as “not relevant” according tax law veteran Franco Grilli Cicilioni from Galadari Advocates and Legal Associates in Dubai

Cicilioni said that a tax reprieve for tourists may still happen. A provision in the agreement between Gulf Cooperation Council countries on Value-Added Tax may allow nonresident persons to recover VAT that they have been charged

RELATED: All you need to know about the UAE’s new VAT law

“The concept is that this will be treated as an export, the VAT as a local tax cannot be enacted abroad therefore export goods and services outside the UAE are zero rated which means they cannot be taxed,” he explained

Therefore, when tourists buy goods to take home this can be treated as an export despite the tax being inevitably charged in the bill by the local supplier of goods

However, a system for VAT tax returns is yet to be decided by the UAE government

“This is anticipated, but not in a definitive way,” Cicilioni said. “The federal law published on August 27 says that the government may detail in the executive regulation a way for a nonresident to recover, it does not say it will, legally speaking, there is no certainty but the issue will be addressed when the executive order is issued

Popular destination

In 2015 and 2016 the UAE was ranked the most visited and fastest growing country in the region according to Mastercard Global Destinations Cities Index

Last year Dubai jumped to the top rank based on international visitor spending of $31.3 billion, far exceeding the second-ranked London, estimated at $19.8 billion

Eyad al-Kourdi, senior vice-president and general manager at Mastercard UAE said in December that the findings of the index show that Dubai is firmly entrenched at the high table of global tourism and travel

The five percent VAT would be added to the existing customer service fee of 10 percent, the municipality fee of 10 percent and the tourism charge that was introduced in 2014

According to Cicilioni, if the reprieve would be implemented for tourists, this will be limited only to goods purchased in the UAE and exported

However, taxable items that are produced in the country and consumed locally may not become recoverable

‘Minimal impact’

Overall, the impact of the VAT - even if there is no reprieve - will be minimal, Cicilioni stressed

“The short answer and the easiest is that because the rate is low compared to other mature VAT jurisdictions that are popular tourism destinations, therefore the impact has been considered as not relevant,” he said

“A few years ago particularly in Europe a number of countries increased there already high VAT, major industries decided reprice their supply of goods and services to absorb the impact that VAT increase could have had

We are talking about jurisdictions that had vat rates between 12 to 25 percent”

The UAE Minister of Economy Sultan bin Saeed Al Mansouri estimated that the tourism sector would contribute 5.4 percent annually over the next 10 years to reach $64.4 billion by year 2026

“The UAE has rich cultural heritage, natural diversity and the developed infrastructure that make it a strong competitor on the world tourism map,” he said

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