The 5% Value Added Tax (VAT) that's due to be added to goods and services in the UAE from the start of 2018 may impact nursery and school fees, says Shiraz Khan, senior tax advisor at the Middle East’s largest law firm, Al Tamimi.
“Although it has been announced that the education sector will be subject to VAT at the zero rate, the VAT treatment for specific education services is uncertain at this stage as it remains to be seen how the education services that are subject to zero rate are defined," says Khan.
"In my view, it is likely that not all education services will benefit from the zero rated VAT treatment. It is possible that a distinction will be made between preschool, primary, secondary and higher education for VAT purposes, with some of these services subject to VAT at the zero rate, while others are subject to VAT at 5%," says Khan.
The fact that compulsory education in the UAE only starts from grade 1 (age 6) may come into play here.
"The VAT treatment for certain education services could also depend on whether the educational institute is public or private," adds Khan. "Moreover, it will be interesting to see how services that are ancillary to the education sector are treated from a VAT perspective, for example, school transport, canteens and accommodation.”
In the UAE, the cost of sending one child to two years of pre-school, and all of primary and secondary school already adds up to an average of Dh528,486 per child, according to 2017 research from insurance company Zurich - Middle East. These costs exclude other fees such as the cost of books, trips and uniforms and could increase by up to 40% for top tier schools. Once you also factor in paying for three years at university, the figures leaps up to Dh938,599, making it almost Dh1 million per child's education (figures are based on sending a child to a UK university).
Nevertheless, although bills are certainly set to rise across the board in the UAE next year, whether or not the education sector is affected, the 5% VAT rate is very low when compared to other countries and expat hotspots across the world. Shiraz Khan explains: “The 5% rate in the UAE will be significantly lower than the global average VAT or GST (Goods and Services Tax) rate. For example, the average VAT across Europe is around 19%, whereas the GST rate in Singapore and Malaysia is 7% and 6% respectively.”
Read a full breakdown of what is and isn't expected to be affected by the new tax: 'How the UAE's new VAT will affect your family's monthly bills".