Hospitality industry comes to terms with 5% VAT charge

The UAE has published its VAT Decree Law four months before VAT is due to be introduced. The 5% VAT tax is set to be imposed on the hotel sector which is already taxed, however there’s no indication that this will change when VAT is introduced, effectively giving rise to double taxation on the hospitality sector in the UAE.

"The implementation process for us began back when the government first announced that they will be implementing VAT in 2016. Hotels around the world have an additional VAT charge and this is not new to the hospitality industry," said Conor Lawler, SVP - finance, Atlantis The Palm at The Hotel Show 2017.

He added that prices will be impacted on the first of January 2018 with most hotels passing on the charge to the customers.  "Our prices will automatically increase on January 1, 2018 and the 5% will be added on to the existing room rate," Lawler said.

Hotels in the UAE already have a tourist tax and a municipality tax; adding on the 5% VAT, however, will make things slightly more costly.

According to Lawler, Dubai as a destination needs to be careful about pricing especially given how it has become expensive over the last few years in the international markets.

The new tax is expected to add $3.27 billion to the UAE government’s coffers in 2018, rising to as much as $5.45 billion in 2019, UAE Minister of State for Financial Affairs, Obaid Humaid al-Tayer, said in December 2016.

However, according to Lawler it won't adversely affect UAE's MICE industry.

"The Atlantis, like all UAE hotels, has an addendum when they sign contracts for meetings and exhibitions where they specify that " this is subject to government announcements. All our future bookings prices will be adjusted to reflect the implementation of VAT," Lawler added.