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What is the Impact VAT will have on the Automobile industry in UAE ?

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 going to experience the impact.


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 will impact these costs.


VAT on Used/New Car in UAE

VAT on Used Cars


VAT on New Cars

5% VAT

VAT on Car Loans

5% VAT

VAT on Annual Costs(Fuel, insurance, maintenance, repair, parking)

5% VAT

How will VAT impact purchasing a New Car in UAE ?

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.

How will VAT impact purchasing an Old Car in UAE ?

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.

How will VAT impact Car Loans from a Bank in UAE ?

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.

How will VAT impact other Annual Costs for cars in UAE ?

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%.

How will VAT impact Fuel-related Cost in UAE ?

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.

How will VAT impact Vehicle Repairs and Servicing in UAE ?

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.

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