VAT–or Value Added Tax–arrived in Dubai, UAE with the new year. How does this affect going out for a drink? In this article I’ll dive into that.
VAT, Fils and Your Small Change
First of all, the VAT rate starting in 2018 is a flat 5%. Meaning if something cost a dollar before, it now costs a dollar and five cents, or AED 1 now costs AED 1.05, to put it in the local currency. Of course, this is further complicated by number of factors.
1/100 of a United Arab Emirates Dirham (abbreviated AED or Dhs) is called a fil. Think of it as the equivalent of a penny, though obviously not in actual value because of the exchange rate. However, pennies (or pence, if you’re from the UK) are very uncommon in the UAE and Dubai. In fact, the smallest coins normally given back in change are 25 fils.
The Abu Dhabi Department of Economic Developed announced earlier this month that rounding up to 25 fils is acceptable but people should not be charged more than 20 fils over their bill amount. This means that something that was AED 1 before and now AED 1.05 after the VAT is included will actually cost AED 1.25. Something that is AED 1.35 after VAT will actually cost AED 1.50. Everything in practice will be rounded up to the closest 25 fils.
While this is not a large amount, it can definitely end up costing on cheap, commonly purchased items like a cup of coffee you buy every day.
VAT-free Zones in the UAE
Adding to the confusion is that the UAE has also created a number of areas that are exempt from VAT. According to the Khaleej Times, these are:
Abu Dhabi: Free Trade Zone of Khalifa Port; Abu Dhabi Airport Free Zone; and Khalifa Industrial Zone
Dubai: Jebel Ali Free Zone (North-South); Dubai Cars and Automotive Zone (Ducamz); Dubai Textile City; Free Zone Area in Al Quoz; Free Zone Area in Al Qusais; Dubai Aviation City; and Dubai Airport Free Zone
Sharjah: Hamriyah Free Zone; Sharjah Airport International Free Zone
Ajman: Ajman Free Zone
Umm Al Quwain: Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port; Umm Al Quwain Free Trade Zone on Sheikh Monhammed Bin Zayed Road
Ras Al Khaimah: RAK Free Trade Zone; RAK Maritime City Free Zone; RAK Airport Free Zone
Fujairah: Fujairah Free Zone; Fujairah Oil Industry Zone (FOIZ)
Some Businesses in Dubai are Exempt from VAT for Now
Interestingly enough, businesses with annual gross revenue of less than AED 375,000 are currently exempt from VAT. However that may change in the coming years as the country sorts out VAT and systems are put in place. Implementing VAT in a country which has never had a sales tax before is quite a large feat! It will take time for everyone to become accustomed to it, and for the proper software, accounting and such to be implemented across everything.
So How Much More Will Drinking Cost in Dubai with VAT?
Aha! The 100 million dollar question. There is obviously the 5% increase from VAT. But then there is also the VAT on rent, utilities, and most everything else that the bars will have to pay. The 5% VAT on drinks goes to the government, not the business to cover their own additional VAT costs. Expect prices to go up because of VAT but not more than 10-15%. The government will be cracking down on businesses that use the VAT as an excuse to jack prices up unfairly.
Finally, things will be further complicated by high (think 50-100%) excise taxes being levied on energy drinks, cigarettes and sodas! What might cost you more than the actual VAT on the alcohol will be the new taxes on your pack of cigarettes (if you smoke) and that Red Bull you mix with the vodka.
The best way to deal with VAT and drinking? Download Brunchy today for iPhone and Android to make sure you’re getting the best prices when you go out for a drink.
Did I miss something? How is VAT affecting you? Let me know in the comments!