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 has said.
Ahmad Al Zaabi, acting director of consumer protection at Dubai Economy, said gyms and other clubs could only charge VAT, or any other tax, 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 have 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.
Mr Al Zaabi said: “For example, 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 does not happen, the contact will be considered “silent” and the merchant “cannot charge VAT from the consumers, or to gain an accepted settlement with their consumers”.
A Fitness First spokesperson said on Thursday that the company is “very conscious of the fact that we fully comply with and implement the federal mandate on taxation”.
“Fitness First has been proactively engaging with the economic departments of both 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 spokesperson said.
Fitness First told The National on Tuesday that any 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 the tax.
However, contracts issued in the pre-decree period only contained 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 as they do not make any reference to tax.
Jeremy Cape, a tax lawyer at Squire Patton Boggs, which has offices in London and the UAE, 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 ongoing confusion, uncertainty and inconvenience, for relatively small amounts of revenue.”
The National asked Fitness First if they would refund customers on pre-decree contracts that were mistakenly charged VAT.
The Fitness First spokesperson 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.”
Lisa Martin, a chartered accountant and founder of the accounting, auditing and VAT consultancy, The Counting House, said on Tuesday that unless Fitness First explicitly stated in its terms and conditions at the time of renewal that VAT would be payable by the customer, then the club cannot charge it now.
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”.