Tax-free no more: Saudi Arabia, UAE to roll out VAT in 2018

Saudi Arabia and the United Arab Emirates, which have long lured foreign workers with the promise of a tax-free lifestyle, plan to impose a 5 percent tax next year on most goods and services to boost revenue after oil prices collapsed three years ago.
(AP) — The value-added tax, or VAT, will apply to a range of items like food, clothes, electronics and gasoline, as well as phone, water and electricity bills, and hotel reservations.

Elda Ngombe, a 23-year-old college graduate who’s looking for a job in Dubai, said there’s one specific purchase she’s planning before next year’s price hike: “Makeup, because I can’t live without makeup.”

“I am scared because everything is actually expensive already in Dubai. The fact that it’s actually adding 5 percent is crazy,” she said.

There will be some exemptions for big-ticket costs like rent, real estate sales, certain medications, airline tickets and school tuition.

Higher education, however, will be taxed in the UAE. Extra costs parents pay to schools for uniforms, books, school bus fees and lunch will also be taxed, as will real estate brokerage costs for renters and buyers.

Other Persian Gulf countries are expected to implement their own VAT scheme in the coming years.

Stores, gyms and other retailers are trying to make the most of the remaining tax-free days in Saudi Arabia and the UAE, encouraging buyers to stock up before the VAT is rolled out on Jan. 1, 2018.

Even with a five percent jump in prices, the tax rate is still significantly less than the average VAT rate of 20 percent in some European countries.

“If you compare with Europe, I don’t think it’s as expensive. Only in rent and food,” said Vera Clement, a mother and assistant manager of restaurants from France who has lived in Dubai for three years.

“We are going to be more careful when we buy something,” she added.