The introduction of VAT in the UAE on January 1^st, 2018 has been described as one of the most significant developments in the country’s fiscal history, paving the way for a post-oil future and diversifying the government’s revenue streams.

There has also been concern though, in many sectors of the economy, about how the new value added tax might affect demand and the cost of doing business. For the cruise sector at least, this concern appears to have been unnecessary.

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“Cruises are considered as ‘supply of passenger transport’ according to the Federal Tax Authority,” says Ashok Kumar, managing director of Cruise Master ME, the primary booking agent in the region for more than 20 major cruise lines.

“As such, international transportation of passengers and goods (including intra-GCC) has a VAT rate of zero. Therefore, I do not see any negative impact on cruise sales in UAE,” he added.

According to the Federal Tax Authority, this zero rate for VAT also extends to “the supply of goods and services relating to these means of transport and to the transportation of goods and passengers,” which means that UAE-based companies supplying services to cruise lines homeporting in, and visiting, Dubai will not have to charge VAT.

Companies supplying services to cruise ships, such as tour companies and related transport, will not be required to charge VAT.

The price of cruises from Dubai, and global cruises bought from travel agents in Dubai and the wider UAE, will therefore not be affected by the introduction of VAT.

Whether or not the introduction of VAT will impact Middle East residents’ appetite for buying cruise holidays remains to be seen. Jihad Azour, director of the Middle East and Central Asia department at IMF has speculated that the 5% tax will have a limited impact on consumer demand.

Anita Yadav, head of fixed income research at Emirates NBD Research, says that the introduction of VAT will have a moderate impact on inflation, which could undermine demand in exempted sectors because consumers have less disposable income.

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Nikola Kosutic, Research Manager for Euromonitor International Middle East said the UAE’s new tax will have varying degrees of impact. “Broadly speaking [exempt sectors] will be least affected,” he said.

In other cruise markets where VAT is charged, the tax has had little impact on demand for cruise holidays. Europe, for example, is one of the world’s largest cruise markets, but the EU charges an 8% VAT across all its member states.

Purchases made on-board cruise ships docked in Dubai or other UAE ports, such as drinks, food and items in shops, are reportedly not subject to VAT.

Different EU states enforce the law to different degrees, however. Spain for example, requires VAT to be paid at all times on any cruise ship sailing roundtrip from its ports, while other EU states only require VAT to be paid while the ship is in port.

Cruise Arabia & Africa understands from several cruise passengers who have cruised from Dubai so far this year, that VAT is not enforced aboard cruise ships in port in the UAE, or within UAE waters, so VAT isn’t applicable to on-board purchases.