GYM MUSCLES IN WITH VAT ON 2017 MEMBERSHIPS
Health club applies tax to this year’s portion of contracts signed last year
Members of Fitness First Middle East are in dispute with the health club over VAT on memberships signed and paid for last year.
Many Fitness First members have complained to the authorities over demands to pay the tax for the 2018 portion of their membership.
“It is very frustrating,” said Mehr Dumont, a housewife from Canada who uses the gym in Mirdif, Dubai.
Some members complained of being denied entry to the club until the tax was paid. When they challenged the company they were told Fitness First’s contracts state the management reserves the right to revise charges or fees at any time.
In an email to members, Fitness First Middle East said that from January 1 any goods and services paid for but not used would incur VAT.
It said this applied to all goods and services including membership, personal training, classes and supplements. But VAT experts told The National that health clubs should not apply VAT retrospectively.
Lisa Martin, a chartered accountant and founder of VAT consultancy the Counting House, said that under the VAT law there was no provision for Fitness First to charge its customers VAT in this way.
“The law is very clear that unless Fitness First explicitly stated at the time of renewal that VAT would be payable by the customer, then under the legislation they cannot now charge it to the customer as an additional cost,” Ms Martin said.
“This is just for the period of introduction of VAT, what is called the transitional period, and any new memberships taken out in 2018 will be subject to 5 per cent VAT.”
Jeremy Cape, a tax lawyer at Squire Patton Boggs, said Fitness First would struggle “to pass on the VAT cost to customers who paid for their gym membership, in the absence of an explicit ‘plus VAT’ clause”.
“Even if there is a ‘plus VAT’ clause, I’m not convinced that it would enable them to pass on the VAT now,” Mr Cape said. “It would need to be very clear that the price could be increased retrospectively.”
He said that he did not believe that the drafters of the legislation intended to impose VAT in these circumstances.
“There is a technical argument that VAT under the existing legislation doesn’t arise in these circumstances,” Mr Cape said.
“If Fitness First make this argument to the Federal Tax Authority, I’d be hopeful that the FTA would confirm that VAT doesn’t arise, or that the law would be changed to ensure that this is the position.”
Ms Dumont signed her contract in February last year, receiving a free month as an incentive for the Dh4,200 renewal, with her membership due to expire on March 9.
But she has so far refused to pay the Dh44 in VAT demanded by the club for this year’s portion of her membership, and says the club has told her it cannot honour her free month unless she pays the tax.
“Even though my contract says it expires on March 9, they have said they won’t honour that final month if I don’t pay VAT,” Ms Dumont said.
“I know plenty of other people are equally infuriated but they just didn’t have the time or patience to fight Fitness First and have ended up paying the VAT.”
She lodged a complaint with the Dubai Economic Department’s consumer protection division and is awaiting a reply.
Ms Martin said it seemed Fitness First was using another clause in its terms and conditions to cover the VAT.
“This clause states: ‘Fitness First reserves the right to introduce and vary the prices and categories of membership from time to time. All fees, including membership classes, personal training coaching and guest fees are subject to change.’
“So while legally they cannot charge the customer the VAT, it seems they do have the option to increase the price of an already fully paid annual membership, and are using this additional revenue to satisfy their VAT payable obligations.”
Fitness First said any membership contracts issued this year, as well as after the decree in 2017, mention VAT and the club’s intention to apply the tax. However, contracts issued in the pre-decree period contained the clause: “Management reserves the right to periodically review their prices, charges and fees and implement these accordingly.”
A spokesman said: “VAT is a tax on consumption of products/services, to be recovered from end consumer. It is not a tax on business activity or income. We have shared our approach with Dubai Economic Department towards the end of December 2017, wherein our tax consultants took them through the law and laid out the company’s stand.”
The health club said it had offered its customers a free onemonth subscription valued at Dh799 as a gesture of goodwill to offset the effect of the tax.
The spokesman said: “We have never denied access to club members, however the access gates do not open instantly for the members who are in arrears. After a polite reminder, we allow the members to use the services.”
Other health clubs in the UAE are not collecting VAT on memberships paid for last year.
A spokeswoman for Gold’s Gym said: “Our policy on VAT collection for health club membership is that we will not collect VAT on any transaction carried out prior to January 2018.”
FitRepublik, a gym in Dubai Sports City, issued an offer last month to its members saying: “Renew now and skip the VAT.”
Real Pilates Dubai revised its decision to charge VAT on 2018 sessions paid for in Dubai.
A message to customers read: “Based on new clarifying advice from VAT consultants, we will now bear the cost.”