Clarity needed on VAT’s impact on UAE education, experts agree

The new VAT law clearly states that Government educational institutions will be zero-rated but questions remain about the impact the tax will have on private schools and universities

Private school fees are to be frozen for the forthcoming academic year. Satish Kumar / The National

Experts say more clarity is needed about how the Value Added Tax will impact private education when it takes effect next year.

While it is clear from Article 45 of the UAE’s new VAT law issued by the President, Sheikh Khalifa, on Sunday that “nurseries, preschools, elementary education and higher educational institutions owned or funded by federal and local government” will be subject to a zero rate, the full impact on private education fees, books, transportation and uniforms has yet to be unequivocally articulated. But education and tax experts said they anticipate private school fees, from at least Grade 1 to Grade 12, to be taxed at a zero rate.

“The direction we’ve been given all through the Federal Tax Authority seminars is that education would be zero-rated,” said David Daly, a chartered accountant in the UAE and the UK and partner at Argent Gulf Consulting.

“What we were unsure about was whether tertiary would be zero-rated for public and standard-rated for private. There was also a question about whether preschool would also be standard-rated for private and that zero rate would only apply from the legal age at which education must start – and the VAT law doesn’t actually say.”

Parents may voluntarily enroll their children in kindergarten but compulsory education in the UAE doesn’t begin until Grade 1, according to Abu Dhabi Education Council and the Knowledge and Human Development Authority in Dubai.

Tania Siddiqui, director of Masterminds Education, said nurseries would welcome a zero rate.

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“Our understanding is that schools will also be able to claim back VAT charged by their suppliers, pending a confirmation of the rules,” said Ms Siddiqui. “This would mean that there would be no impact of VAT on parents and schools. Being zero-rated means that parents will be able to continue to focus their investment solely on high-impact education for their children. This is great news for both parents and schools.”

In addition to questions about which levels of private education would be taxed, Mr Daly said there is some debate about how auxiliary education services and products such as transportation, uniform and books would be affected.

Brendan Law, headmaster of Cranleigh Abu Dhabi, said he has yet to receive official confirmation of how the law would affect private schools.

“We have attended a couple of courses and it seems as if the recommendation anyway … would be that the line being taken, which is a positive one, is that the tuition fees would be zero-rated,” said Mr Law.

“We haven’t seen anything official and we will obviously wait for that before we communicate anything to parents.”

Whether school textbooks, uniforms or transportation would be zero-rated, exempt or taxed is “still a little bit up in the air,” he added.

“We are anticipating that all sorts of additional costs would be subject to VAT in the same way as retail outlets and things like that would charge VAT,” Mr Law said. “Everybody knows that school fees are quite a hot topic when it comes to the cost of living – in any part of the world, I’m not talking just here – and to zero-rate it is a very positive sign from the Government’s point of view that it, too, values education and sees it as a really important component.”

As with any new law, there are going to be grey areas, said Mr Daly.

“That is the reality of this, and there are likely to be tweaks,” he said. “This is pretty much done but there will be little changes here and there, and that’s to be expected.”

A spokesman from Aldar Academies, which operates private schools in Abu Dhabi, claimed private schools would be zero-rated but was still awaiting confirmation on how other school costs would be affected.

“As the country's leadership has stated, there will be no impact on education fees, including those across Aldar Academies' network,” said Ashley Dymoke, director of marketing and communications, Aldar Academies. “We welcome this decision, given the importance of providing communities with an education that is both outstanding and affordable.”