The value-added tax, as per schedule, was launched in the UAE on 1 January 2018. The businesses making the supplies of taxable goods and services within the country are liable to pay tax under VAT.
Because of the low tax rate (5%) of the UAE VAT, it is not expected to cause a Major impact on the life and business of residents. However, the automobile industry is gonna experience the impact. Here’s why.
As you may already know, people in UAE are fond of big, royal cars. Of course not all people, but many of them are. These people will have to pay 5% tax on the purchase of new cars, which will be a significant amount considering the high cost of cars.
Let’s discuss the impact of VAT on different car segments of the UAE.
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VAT on Cars in UAE
Buying a car is not just about the cost of the car, but also it involves other expenses such as fuel, insurance, maintenance, repair, parking, etc. The 5% VAT is surely going to increase the cost.
This is the reason why many automobile dealers in the country were giving offers on cars ahead of VAT just to clear out their old stocks.
Here’s how VAT is gonna impact these costs.
|VAT on Used/New Car in UAE|
|VAT on Used Cars||NIL
|VAT on New Cars||5% VAT|
|VAT on Car Loans||5% VAT|
|VAT on Annual Costs (Fuel, insurance, maintenance, repair, parking)||5% VAT|
VAT on Purchasing a New Car
When purchasing a new car from the agency or dealer, you will have to pay 5% VAT on the car’s original price. This will have an impact on the car cost, depending on the actual price.
However, if you purchase a new car from the owner, you might not have to pay the VAT depending on the seller’s choice.
VAT on Used Car
After the implementation of Value Added Tax (VAT), the different type of confusion arises between taxpayers. Various taxpayers are not aware of the new tax system because the UAE has not had any tax system since the beginning. One of the most confusion is that used car comes under vat or not.
Yes, When you buy an old car through a registered agency or dealer, you will have to pay 5% as VAT on the profit amount (dealer’s margin) in addition to the car cost.
If you purchase an old car from its owner, you don’t have to pay any tax on it.
VAT on Car Loans from a Bank
Bank loans are kept free from tax, so there will be no tax levied on the loan installments and interest.
However, there is a VAT of 5% on the loan processing fee (usually from Dh500- Dh1,500) charged by the banks.
Other Annual Costs
There is no VAT on car license registration and inspection services, however, the cost was increased only a month before, so the new owners will have to pay the increased cost.
Car insurance and renewals will be taxed at the standard VAT rate of 5%.
With the implementation of 5% VAT on fuel, the consumption cost of vehicles has increased. VAT is applicable on petrol, diesel, and gasoline and not on natural gas and crude oil. So, petrol and diesel cars will cost more over the time. There is no tax on recharge cards and Salik tags.
VAT is also applicable to almost all commercial and residential parking services, but not on RTA parking.
VAT on Vehicle Repairs and Servicing
Regular car maintenance and servicing now costs more since there is a VAT of 5% on regular servicing and repairs, including the car wash and oil change at the service centers. VAT is also applicable to the purchase and servicing of spare parts of a vehicle.
Overall, VAT is likely to have a visible impact on the sales of cars in the UAE in the coming months.