Understanding VAT on hotel services in the UAE: What makes it so complicated?

Dubai’s Hospitality Growth: By the end of 2024, Dubai’s hospitality sector is projected to have 851 hotels and 150,879 rooms, driven by a surge in tourism, with 9.31 million visitors recorded in the first half of the year.
Complex VAT Management: The hospitality industry in Dubai faces intricate VAT processes, particularly in managing hotel tariffs, municipality fees, and bundled services, necessitating compliance with varying VAT regulations.
Challenges with VAT Rates: Hotels must navigate different VAT treatments for various services, as room rates and offerings like meals and spa services may have distinct rates, complicating accurate tax application.
Additional Fees and Bundled Services: Beyond VAT, hotels must account for extra charges such as the Tourism Dirham Fee and Municipality Fees, requiring careful consideration of whether these fees should be taxed alongside room rates.
International and Administrative Complexities: Managing VAT for international clients, handling advance payments, cancellations, and ensuring accurate documentation for business travellers complicates the VAT landscape for hotels, highlighting the need for robust systems to streamline compliance.

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