By now, we’ve all pretty much adjusted to the idea of value-added tax (VAT) in the UAE. That’s thanks, in part, to the fact that it’s a pretty simple tax – just add 5% onto the purchase price.
However, things get a little more complicated when you’ve paid for a service that spans from 2017 into 2018. Technically, the part of the service that falls in 2018 should be taxed. So, for example, if you bought an annual insurance policy on July 1, 2017, for AED 2,000, in theory, you could be liable for 5% tax on the AED 1,000 that covers you from January 1, 2018.
And this doesn’t just apply to insurance policies. Gym memberships, service contracts, or anything that could spread over the course of a year, are all being thrown into confusion over VAT.
Indeed, Fitness First members were recently disappointed to find out that, to be granted access to health clubs, they had to pay VAT on the 2018 part of memberships that they took out in 2017.
But is this actually the rule? Do you really have to pay tax on services that you already paid for last year?
There are two things to consider here. VAT is a tax on consumption, so, technically, any services that are delivered or consumed in 2018, after VAT was implemented, should be taxed. In fact, if you’re Fitness First, or an insurer, you’ll have to pay your taxes on those services that are delivered in 2018 – regardless of when your customers paid for them.
Naturally, then, the inclination among these businesses is to pass that cost onto the consumer.
But here’s where you can consider the second point. According to a number of experts, unless it was specifically stated on your 2017 invoice that you’ll have to pay VAT on the portion of the contract that falls in 2018, you aren’t legally obligated to pay.
Fitness First says that it’s prices are subject to change without notice, which is how it’s justifying the extra charge. However, most other businesses are simply taking on the cost themselves.
So, the rule here is that, yes, a business might challenge you to pay VAT on the 2018 portion of a contract that you signed in 2017. However, you’re free to dispute the charge – particularly if no mention was made of VAT in the contract you signed.