Health club VAT rules clarified

Health clubs cannot charge VAT on membership contracts issued last year – unless they made clear reference to the tax at the time, a senior government official said.

Ahmad Al Zaabi, acting director of consumer protection at Dubai Economy, said gyms and other clubs could charge VAT, or any other tax, only on contracts signed last year “if the documented agreement terms specified the same”.

His comments came after Fitness First members became embroiled in a dispute with the health club over VAT being applied to memberships signed and paid for last year.

Many members complained about demands from the company to pay the tax for the 2018 portion of their membership, with some claiming they were denied entry to the club until the tax was paid.

“For example,” Mr Al Zaabi

said, “the agreement should state that the fee applicable does not include VAT or any of the tax concerned, and also specify that the merchant reserves the right to charge VAT or any other tax that may be implemented in the country at any point during the agreement period.”

He said if this did not happen, the contract will be considered “silent” and the merchant “cannot charge VAT from the consumers, or gain an accepted settlement with their consumers”.

A Fitness First spokesman yesterday said that the company was “very conscious of the fact that we fully comply with and implement the federal mandate on taxation”.

“Fitness First has been engaging with the economic departments of Dubai and Abu Dhabi, our tax advisers and the Federal Tax Authority, to ensure that we remain fully VAT compliant and the relevant authorities are fully cognisant of our actions and communications on VAT,” the spokesman said.

Fitness First told The National on Tuesday that membership contracts issued this year, as well as after the issuance of the VAT decree law in the summer of last year, mention VAT and the club’s intention to apply it.

However, contracts issued in the pre-decree period contained only the clause: “Management reserves the right to periodically review their prices, charges and fees and implement these accordingly”. Fitness First would therefore not be entitled to charge VAT on those contracts because they do not make any reference to tax.

Jeremy Cape, a tax lawyer at Squire Patton Boggs, said: “I think that Fitness First has a good argument that it can charge VAT on the post-decree contracts. It has a much weaker argument on pre-decree contracts. However, it remains unclear to me why the legislation took this approach, which seems destined to create confusion for relatively small amounts of revenue.”

The National asked Fitness First if it would refund customers on pre-decree contracts that were mistakenly charged VAT.

The spokesman said: “An overwhelming majority of our members have understood the VAT levy and have paid. They have also appreciated our goodwill gesture to offer them a complimentary one-month membership valued at Dh799, to every member who has to pay the VAT tax on the remaining period of their membership.”

For customers unsure if they should pay VAT retrospectively, Mr Al Zaabi said they should “review their agreement and terms and discuss with their merchant if the agreement was a silent one”.

If cases are left unresolved, Mr Al Zaabi urged customers to contact the consumer rights department at Dubai Economy.

Have you been incorrectly charged VAT by a merchant in Dubai? Tell us your story by writing to pf@thenational.ae