EXCLUSIVE: VAT to apply on new and used car purchases

10 December 2017
Accounting systems will automatically roll over on 1 January to apply VAT on relevant goods

All new car purchases will be subject to the UAE’s 5 per cent value added tax (VAT), including in purchases where the car has not been delivered to the customer prior to 1 January.

“Our [accounting] system will automatically roll over on 1 January and apply VAT on each transaction, which includes car purchases that have not been completed on that date,” says a source who works for one of the largest car dealers in the UAE.

Reasons for delay in delivery include extended bank loan approval and car registration procedure.

The new VAT law requires car importers in the UAE to pay the government an inbound VAT, which will then be passed on to end customers.

New car sales are understood to fall under  the category "services or goods that are sold in the UAE" that are not  explicitly stated in the list circulated by the UAE Federal Tax Authority (FTA).

MEED understands there have been a major spike in car sales in the final quarter of the year, as a result of promotions arising from excess supply as well as customers keen to avoid paying VAT.

In addition to new car sales, UAE’s VAT will apply on the profit margin made on  the sale of second hand cars by retailers.

The FTA recently published the list of supplies and services that will be subject to VAT come 1 January 2018. The VAT will apply to specific supplies in the education, health care, oil and gas, financial services, real estate, investment, precious metals and jewellery, telecoms, insurance and reinsurance and food and beverage. Services in some sectors like transportation will not be subject to VAT.

School fees, preventive healthcare services including vaccinations, issue, allotment or transfer of an equity or debt security, and 99 per cent pure gold that are tradable, are among the products and services exempt from VAT in the UAE.

The export of goods and services to outside the GCC implementing states and the activities of not for profit organisations are also considered outside the scope of the VAT system.

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