Members of Fitness First Middle East are embroiled in a row with the health club over VAT being applied to memberships signed and paid for last year.
Many Fitness First members have complained to the authorities over demands from the company to pay the tax for the 2018 portion of their membership; however, the company maintains it has complied with regulations as VAT is a tax on consumption of products or services, and not on businesses.
The health club said it has offered its customers a free one month subscription valued at Dh799 as a gesture of goodwill to offset the effect of the tax.
“It is very frustrating,” said Mehr Dumont, a housewife from Canada, who uses the Fitness First gyms in the Mirdif area of Dubai.
“In the contract I signed last year, there is no stipulation for VAT to be added.”
Some members complain of being denied entry to the club until the tax is paid. When they challenged the company they were told Fitness First could charge VAT as contracts state the management reserves the right to revise charges or fees at any time.
In a letter emailed to members, Fitness First Middle East said from January 1 any goods and services paid for but not utilised “will incur VAT”.
“This means if you purchased any services prior to January 1, 2018 and the same has remained proportionately unutilised, then from January 1, 2018 onwards you will be required to pay 5 per cent VAT on the unutilised portion of those services on a pro rata basis,” the letter said, adding this applied to all goods and services such as membership, personal training, classes and supplements and proteins.
However VAT experts told The National that health clubs should not apply VAT retrospectively.
Lisa Martin, a chartered accountant and founder of the accounting, auditing and VAT consultancy, The Counting House, said under the Transitional Provisions of Decree Law and Executive Regulations of the Decree Law there is no provision for Fitness First to charge its customers VAT on an annual subscription paid for in 2017.
“The law is very clear that unless Fitness First explicitly stated in the T&Cs at the time of renewal that VAT would be payable by the customer, then under the VAT legislation they cannot now charge it to the customer as an additional cost,” she 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, which has offices in London and the UAE, said Fitness First would struggle “to pass on the VAT cost to their customers who prepaid 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 – it would need to be very clear that the price could be increased retrospectively,” he said, adding that he did not believe it was the intention of the drafters of the legislation to impose VAT in these circumstances.
“There is a technical argument that VAT under the existing legislation doesn’t arise in these circumstances. If Fitness First (and other suppliers in a similar position) make this argument to the FTA, 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.”