The likely impact of VAT on the UAE hospitality sector

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13/11/2017 - Hospitality

In TFG Asset Management’s latest article published on Hospitality Net, we turn the spotlight on one of most important issues facing the UAE’s hospitality sector, the introduction of value-added tax (VAT).

In the article, we highlight the likely impact of VAT implementation in UAE hospitality businesses and the measures asset managers must take in order to facilitate any changes and mitigate against any negative consequences. The two main tasks of asset managers will be to ensure that operational performance is not affected and to prioritise the owner’s returns, simultaneously ensuring that the transition process for our operating partners and team is delivered in the most efficient way possible.

One of the main concerns is VAT’s potential impact on demand, as the tax burden will fall to consumers. With ADR, and consequently RevPAR, falling across the UAE in 2017 it is important it does not negatively impact existing demand. It is important to analyse the effect on the market and respond accordingly. Hoteliers should aim to avoid a price war with rivals in a bid to maintain present occupancy rates in any instance of declining demand.  

Asset managers will also have to ensure all operational and financial procedures are updated to prepare for the introduction of VAT. The asset management team needs to assist the hotel operator, providing the appropriate support to analyse and understand the impact of VAT on their day-to-day operations. Businesses will have to consider issues including staff training, VAT refund procedures, update of accounting systems, etc. Failure to do so could end up costing the owner and operator in the form of penalties and operational issues.

Our team recommends hoteliers implement the required measures as early as possible, and once VAT has been introduced, ensure effective procedures are in place so they can then further analyse any changes in consumer behaviour and trends in demand growth.

To access the full article, visit Hospitality Net.