UAE government clarifies VAT liability on pre-2018 business contracts

Federal Tax Authority says customer liable only if contract said amount was “exclusive of tax”

The UAE’s Federal Tax Authority (FTA) issued a clarification over VAT liability pertaining to contracts issued last year, laying to rest residual questions over whether businesses or consumers are liable in such cases.

“The only case where consumers are directly responsible for paying VAT on received services that are delivered fully or partially after VAT went into effect, is where the contract, issued before 1 January 2018, states that the amount due is exclusive of tax,” the FTA said in a statement to media.

Earlier this year a dispute broke out between health club Fitness First and its members in the UAE, over VAT being applied to membership agreements signed and paid for last year.

Many members complained about requests from the company to pay the tax for the 2018 portion of their membership, even though they had already paid the cost of their membership according to Fitness First’s 2017 prices, which did not include VAT.

The dispute prompted Ahmad Al Zaabi, acting director of consumer protection at Dubai Economy, to clarify the rules.

“The agreement should state that the fee applicable does not include VAT or any of the tax concerned, and also specify that the merchant reserves the right to charge VAT or any other tax that may be implemented in the country at any point during the agreement period,” Mr Al Zaabi said in a statement in January.

If such terms are not stipulated, the contact will be considered “silent” and the merchant “cannot charge VAT from the consumers, or gain an accepted settlement with their consumers”.

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