The Impact of VAT on Car Ownership in Dubai

Owning a car in the UAE is a big decision since it involves many hefty expenses including fuel, insurance, parking and maintenance. For those UAE residents who were struggling to figure out if they can afford to own a car, this decision has become even more difficult after the implementation of value-added tax (VAT). The experts at ServiceMarket, the UAE’s leading marketplace for home services, and CarSwitch.com, the first marketplace for certified used cars in the region, have joined hands to demystify VAT and help you understand its immediate effects.

Cost of buying a car

The application of VAT depends on whether you are buying from the agency or dealer, or directly from an individual owner. If you are purchasing a brand new car from the agency, or a pre-owned car registered under the agency or dealer, then you’ll have to pay 5% VAT on the car’s value. The verdict is still out on how it will be applied, as it can either be 5% of the RSP (recommended selling price) or the actual invoiced amount (which could be discounted). On the other hand, buyers of used cars still registered under the original owners but being sold through dealers will have to pay 5% on the profit the car dealers are making. So the only sure way to avoid VAT is to buy the car through platforms like CarSwitch.com where you can purchase the car directly from the individual owners. A recent analysis by CarSwitch.com indicates that sales have slowed down substantially in early January relative to last year, which suggests that some people may have preponed their purchases.

Car loan from the bank  

No VAT applies to car loan installments and the associated interest rates as of yet. Most banks have not changed their interest rates either, which means the banks will absorb any application of VAT for the time being. However, bank loan processing fees, usually in the range of AED 500-1,500 are subject to 5% VAT.

Annual costs

While the VAT does not apply to car license registration and inspection fees (Tarkhees), the prices were increased a month ago. The car license renewal fee was increased by 17% from AED 300 to AED 350, and the inspection fee went up by more than 20% from AED 140 to AED 170 in December 2017. You should also budget for a 5% VAT on your car insurance and reinsurance.

Consumption costs

Dubai residents are now facing higher consumption costs because 5% VAT applies to petrol, diesel and other oil and gas products at the pump. Salik tags and recharge cards are exempt from VAT, but some people were charged 5% on the first day of VAT implementation due to a glitch. The good news is that you can get a refund if this happened to you. While it doesn’t apply to RTA parking fees, you can expect to pay 5% VAT for both residential and commercial parking. If your residential rent includes charges for parking, then it won’t apply to you.

Servicing and repairs

Car maintenance has become more expensive as 5% VAT is also applicable on periodic servicing including oil change, car wash at the gas station, etc. It even applies to car repair services and purchase of spare parts. Since getting your car repaired will now cost you more if you had an accident, it makes more sense than ever before to invest in the right comprehensive car insurance policy.

We have yet to see how VAT will affect sales of cars as well as other products and services in the coming months, but it is likely that there will be a decline in the number of sales. However, since many companies are currently offering discounts and promotions, you can still find plenty of good deals in the market.  

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