Marriott boss warns hotels over tax implications

Arabian Business staff writer, June 24th, 2016

Tourists and residents wishing to stay overnight in the UAE could end up paying a combined tax rate of up to 31% when valued-added tax is introduced, one top hotelier has told sister publication Arabian Business.

Marriott International president of Middle East and Africa operations Alex Kyriakidis said that the implications of the extra fee, on top of existing municipality and service charges of 20%, as well as the ‘tourist dirham’ tax, could convince customers to change hotels.

The Gulf states are expected to introduce VAT in 2018, with the rate believed to be 5%.

“On the face of it, it would seem benign and that’s ok if that’s all it was,” Kyriakidis said.

“But if you were to take a [five-star] Marriott Executive Apartment with three bedrooms – at, say, AED1,000 – you’re already at AED1,200 because of the service and municipality tax, and with three rooms that’s an additional AED60 on top.

“So that’s 26% already on that rate. Add in VAT, and another 5% takes it to 31% and you could begin to affect people’s buying decisions.”

“And if you leave that segment and come down – and that’s the segment that you really want to encourage growth because you want to diversify and bring in more people to Dubai who are very budget conscious – adding another 5% on top of the 20% could have an impact.”

Dubai’s ‘tourist dirham’ fee, of between AED7 to AED20 per room was introduced in 2014 to help cover the cost of Expo 2020 projects.

Earlier this year, Abu Dhabi introduced a 4% municipal fee on hotel guest bills, as well as a AED15 per night, per room charge.

“What we are saying to the DTCM and to government is – let’s make sure we do our analysis,” Kyriakidis said. “Let’s make sure we look at the implications through proper analysis, proper modelling, focus customer feedback to really, really understand the effect of introducing 5%, let’s say, tax to the hospitality industry.

“Could you make a case for exempting the industry versus not? This is the kind of discussion we need to have with government.”

Once Marriott’s acquisition of rival Starwood is confirmed, the combined entities will have a total of 80 hotels in the UAE, with 22,000 rooms, Kyriakidis said.