No VAT on air travel, school fees comes as relief for UAE residents

The UAE will implement five per cent VAT on goods and services from January 2018 as part of a GCC-wide agreement

Here is good news for the UAE residents: There will no value-added tax (VAT) on air travel, tuition fees and doctor's fees. The President, His Highness Sheikh Khalifa bin Zayed Al Nahyan, on Sunday issued Federal Decree-Law No 8 on value-added tax with one of the lowest rates in the world.
The UAE will implement five per cent VAT on goods and services from January 2018 as part of a GCC-wide agreement. "Very important to the wider public is the subjecting of the education and healthcare sectors to zero rate. Tuition fees will, therefore, not increase. The same holds for preventive and basic healthcare," said Thomas Vanhee, founding partner, Aurifer Middle East Tax.
However, extracurricular activities such as sports classes, music lessons or school transport will be subject to VAT.
The law also confirms that the first supply of residential buildings within three years of their completion is subject to zero rate. It is not only beneficial for prospective buyers of a new home but also good news for the UAE real estate sector. Vanhee said if a property buyer takes a unit directly within three years of completion of the project, the price will be zero-rated. And if the buyer wants to sell the property later, he will be exempted from VAT.
While crude oil and gas will be zero-rated in the UAE, Saudi Arabia is not expected to do the same, Vanhee added.
Air transport of passengers and goods which starts or ends in the state or passes through its territory, including related services, have been categorised as zero-rate d under the law.
"Flights from Dubai to Riyadh or to a third country will not be subject to VAT. This is good news for the tourist sector, which already sees prices for hotels and restaurants increase with five per cent VAT, said Vanhee.
"International transportation (including airlines) is zero-rated. Similarly, the supply of local transport is exempt from VAT. The supply of international transportation of passengers and/or goods and its ancillary services are also zero-rated. The supply of local passenger transport in a qualifying vehicle, vessel or aircraft too is exempt from VAT," said Girish Chand, director MCA Chartered Accountants.
The UAE is home to more than eight million expatriates from over 200 nationalities who fly regularly to their home countries in addition to travelling to other destinations of tourism.
Dubai International Airport received 43 million passengers in the first half of 2017, an increase of 6.3 per cent. In addition, a record 8.06 million international overnight tourists arrived in Dubai during the first six months of 2017, a 10.6 per cent increase over the same period last year.
Saj Ahmad, chief analyst at StrategicAero Research, said that it's a good move to spare air travel because it would help keep fares lower. "This is key to ensuring demand stays positively stimulated. It also demonstrates the diversity of the UAE economy so that it doesn't have to tax obvious lines of business that would hit the pockets of travellers."
Ahmad pointed that with no VAT, air travel would remain competitive for low-cost airlines who can price their fares more aggressively. At the same time, those who fly long haul on Emirates and Etihad will not have to pay extra on flights, particularly to the US where demand was seriously hit earlier this year due to the travel and electronics ban, he added.
Ghaith Al Ghaith, CEO of flydubai, welcomed the decision of the Ministry of Finance to include the international transportation industry and related supplies under zero-rated category.
"Flydubai's pricing strategy takes into consideration multiple factors, including the currency rates, oil prices and supply and demand. We remain committed to offering passengers the best value for their money and playing an important role in supporting the UAE, and Dubai in specific, in maintaining its position as one of the world's leading aviation hubs," added Al Ghaith.
The new VAT legislation also prohibits anyone having business in the UAE not to have more than one tax registration number (TRN).
Vanhee pointed out that there is a substantial difference between the UAE and the Saudi VAT laws, therefore, businesses with operations in both the countries have to read both legislations closely.
"Businesses with operations in both the UAE and the Kingdom of Saudi Arabia will incur substantial administrative costs due to the different laws, VAT returns and procedures. Whereas in the European Union the European Commission pushes towards harmonisation of the laws and obligations, the GCC member states have not harmonised their laws and obligations," he added.
waheedabbas@khaleejtimes.com