VAT on Travel and Tourism in the UAE
Travel and Tourism is a thriving industry in the UAE and the hospitality sector is one of the most important business sectors in the mainland attracting millions of people to the mainland. The sector contributes immensely to the economy of the country with tourist spending in the UAE projected to reach Dh 205.5 billion by 2022 according to a study by the Dubai Chamber of Commerce and Industry. The services included in the travel and tourism industry comprise a wide range of amenities like airlines and transportation, Restaurant and accommodation services, recreational and entertainment charges, telecommunication, agency services, tour packages, and other activities such as exhibitions or conferences.
According to the VAT (Value Added Tax) regulations in the UAE, all these services are subjected to VAT regulations with a standard rate of 5% added to the price even if the services are booked from outside of the Gulf countries. However, a Tax-Free Purchase Scheme is in place, whereby the purchases made by an overseas tourist are subjected to a tax refund scheme under certain conditions.
As defined by the FTA (Federal Tax Authority) of the purpose of VAT in the UAE, an oversees tourist is any natural person who is not resident in the UAE or any of the other implementing states who is not a crew member on a flight or cruise and is leaving the UAE to outside the implementing states. When the concerned individual makes a taxable purchase in the UAE, a standard VAT rate is added to the price of the purchased goods or services whether it be a restaurant bill or a conference fee. In addition, if the value of the tax-inclusive purchases made by overseas tourists on the mainland is AED 250 or more, they can request a tax refund, given they are eligible for the tax-refund scheme.
To be eligible for the tax-refund scheme in the UAE, the person should meet:
- The conditions as specified in the executive regulations on Value Added Tax (Clause (2) of Article 68).
- The Goods are purchased from a Retailer who is participating in the Scheme.
- The purchase of the Goods from the Retailer is conducted in accordance with requirements as determined in a decision issued by the Chairman.
The Export of Goods is conducted in accordance with requirements as determined in a
- The decision was issued by the Chairman.
- The Goods are not excluded from the Scheme by the Authority.
The retailer eligible to be a part of the tax-refund scheme in the UAE must:
1) Be registered with the Federal Tax Authority and hold a valid Tax Registration Number for VAT purposes.
2) Be a seller of goods that are not excluded from the refund as determined by the Federal Tax Authority.
3) Submit an application to join the scheme as determined by the Federal Tax Authority and
be subject to a credit check by the Operator.
4) Regularly submit VAT returns and settle payable tax to the FTA.
The following Goods shall be excluded from the Tax Refunds for Tourists Scheme:
- Goods that are not accompanied by the Overseas Tourist at the time of leaving the State.
- Goods that have been consumed, in full or in part, in the State or any other Implementing State.
- Motor vehicles, boats, and aircraft.
The tourists' tax-free tag needs to be validated within 90 days of the purchase. If receipts are not validated within 90 days, the tax-free tag expires and VAT cannot be claimed.
FAQ
1. What is the VAT rate on travel and tourism services?
Travel and tourism services (including hotels, restaurants, transport, and entertainment) are charged the standard VAT rate of 5% regardless of whether they were purchased outside the Gulf countries.
2. Which tourism services are subject to VAT?
Airline/transport, restaurants, hotels, leisure/entertainment, telecommunications, agency services, tours and events such as exhibitions or conferences will all be subject to VAT.
3. What is an overseas tourist?
An overseas tourist is any non-resident of the UAE or other implementing state who is not part of a flight or cruise crew who departs from the implementing states.
4. Can tourists receive a VAT refund from the UAE?
Yes. An overseas tourist may make a claim for a VAT refund if they meet the criteria. They must have made purchases of AED 250 or more from a participating retailer with tax included.
5. What items are excluded from the tourist VAT refund in the UAE?
Items which are not carried by the tourist, goods that are wholly or partially consumed within the UAE or other implementing states, and vehicles, boats and aircraft.
6. What criteria must be met by retailers to participate in the Tax Refund Scheme?
They must have a valid Tax Registration Number, sell goods which are not excluded, apply to take part in the scheme, pass the credit check by the operator, and regularly submit VAT returns and pay tax.
7. How long can tourists wait to activate their tax-free tag in the UAE?
Tourists will need to activate their tax-free tag within 90 days of purchase. If they do not activate their receipt within this time frame, the tag will expire, and they will not be able to claim VAT.
The right understanding of VAT rules and regulations is very important whilst doing business in Dubai. For the past 17 years, Flying Colour Tax Consultant LLC has been helping clients by providing them with required advice and assistance on tax-related matters. Please feel free to mail your queries to info@flyingcolour.com or contact us at +971 4 4542366.
To learn more about All about VAT on Travel and Tourism in the UAE, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.