The United Arab Emirates (U.A.E.) is the second-largest automotive market in the Gulf Cooperation Council (G.C.C.), after Saudi Arabia, and relies heavily on imports. Currently, there is no VAT, Luxury Tax or Special Consumption Tax on vehicles in the U.A.E however a proposed 5% VAT is expected to be implemented in 2018. It is expected that VAT on a second-hand vehicle will be different than a new vehicle because a second-hand car has already incurred a non-recoverable VAT at the time of purchase. Experts are predicting that the used car market will strengthen and demand will grow higher as cost of living will marginally go up.
What does the future hold for the automotive market in the U.A.E?
Overall, 2016 was not a good year for U.A.E. new vehicle sales. According to research, there were 319,878 units sold, which was down by 23% percent from 2015. Experts are predicting another slow growth of sales for 2017. With VAT to take effect from January 2018 will there be an influx of new car sales in the last quarter of 2017 driving up the sales figures?
No one wants to pay an extra 5% on the purchase of a new car but after January 2018 the price of every new car will rise by 5%. So, if you buy a brand-new Bentley Continental GT 2017 it would cost you 840,000 AED for the base model. If you buy it from the 1st of January 2018 it would increase by 42,000 AED.
Will VAT effect the used car market?
Our analysts at GAS are predicting that the used car market in the U.A.E will change dynamically and the demand for used cars will increase as car buyers will be more inclined to buy used cars instead of new ones with applied VAT prices. This effect will increase demand for used vehicles, effectively increasing used values.
According to Nielsen’s Global Survey of Automotive Demand which polled over 30,000 internet respondents in 60 countries:
28% of UAE respondents said they will buy a used car in the next two years creating even more demand