(Image: flickr/Ken Teegardin) (Image: flickr/Ken Teegardin)

The United Arab Emirates and Saudi Arabia introduced 5% value added tax (VAT) for the first time in the Gulf region's history on January 1, 2018. 

The 5% sales tax applies to most goods and services and analysts project that the two governments could raise as much as $21 billion in 2018, equivalent to 2% of GDP, according to an AFP report.

The other Gulf states - Bahrain, Kuwait, Oman - are also committed to introducing VAT but have decided to delay the move until early in 2019

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According to Moussa El Hayek, chief operating officer of Al Bustan Centre and Residence in Dubai, hotels in the UAE are prepared for this change.

"All the necessary guidelines have been communicated to our counterparts be it our corporate clientele or shopping mall tenants and also to our in-house guests at large. The information is communicated through formal letters and flyers that are circulated at various information desks around the property which are accessed by the visitors and guests and all the internal systems have been revised and the internal staff is made aware of this change as well," El Hayek added in an interview with Hotelier Express.

Mark Fernando, general manager, Ramada Downtown Dubai said: "Ramada Downtown Dubai is duly prepared for the implementation of VAT starting January 1 and our guests were informed well in advance through various channels including email, our tour partners and the booking engines. Guests are again briefed about the 5% VAT during check-in and so far, the process has been smooth and there are no negative responses."

Hoteliers in the UAE and Saudi have also been studying up on the new rules and regulations with regard to VAT.

Park Inn by Radisson Dubai Motor City general manager Paul Uglesic told Hotelier: "In regards to VAT, our financial controller has attended several seminars and has been co-ordinating with both our Carlson Rezidor area support office and the hotel’s owning company to ensure tax office compliance; system wise, during our pre-opening configuration we have also configured our PMS to be in line with VAT implementation as of January 1, 2018; for potential guests we have been transparent clearly displaying VAT information on our website, OTA websites and confirmation letters and finally we have the official VAT communication from the DTCM clearly displayed at our front desk."

In an interview in June 2017, Alex Kyriakidis, president of Marriott International’s Middle East and Africa operations, said to sister publication Arabian Business, that setting proper processes within hotels is essential because as the implications of the fee, on top of existing municipality and service charges of 20% as well as the tourist dirham tax, could convince customers to change hotels.