How would the new VAT refund scheme affect you?

The UAE economy had undergone a significant change with the introduction of Value Added Tax on January 1st, 2018. A year has passed, and the public has now adapted to the idea of paying 5% tax on all purchases. However, it was noted by the government that tourism, one of UAE’s biggest assets was low this year. Hence, the UAE Federal Tax Authority (FTA) had announced that a tax refund scheme for tourists will come into effect from November 18, allowing eligible tourists to request refunds of value added tax (VAT) incurred on their purchases.

Further information regarding the specific details on how the scheme works, from the tourist point of view, can be found on Khaleej Times. But on the flip side, how do you believe this would affect your business? Of course, it has to be noted that Dubai was a shopaholic’s heaven due to its tax-free economy. They would definitely gravitate towards those retailers for whom they do not have to pay tax for, especially on large purchases.

Is it worth the hassle to register as a retailer for the scheme?

Higher sales are always a good thing. Taking into account the large number of tourists that visit UAE each year, it can be said that though there is a slight hassle, the pros highly outweigh the cons. Keeping that in mind, it would be advisable to calculate the cost per customer in regards to expected sales.

What if I am not a retailer?

The scheme would indirectly affect non-retail businesses too. Supply chains would be affected, as the retailer has to pay VAT to wholesalers, regardless of whether their customers pay or not. Accounting as well as audit firms will have to take the new scheme into account while making reports. A number of other industries such as hospitality, food and dining and so on, would be minutely affected. This would mainly be due to the increase in tourists rather than the introduction of the scheme.

To sum up, although the scheme is beneficial to both tourists as well as retailers, it would mainly affect the fashion and luxury goods industry, as compared to fast moving consumer goods (FMCG). As the refund only takes place on purchases above AED 250, small scale retailers would not be affected.