New UAE tax: Fashion, luxury brands rush to set up local shop as trade fees surge

Fashion retailers such as Centerpoint online, 6thstreet, namshi and offline players are expected to be the major beneficiaries of the new policy change, as fashion and beauty accounts for approximately 70 percent of UAE’s cross border trade.

The policy change, which came into force from the beginning of the year, will also lead to local retailers embarking on major product and marketing initiatives to enhance value propositions to attract and retain consumers looking for local alternatives.

Changes to UAE customs rules

The UAE customs recently announced lowering of the high value threshold for shipments imported into the UAE will be reduced from AED1000 ($272) to AED300 ($81) effective from January 1, 2023.

A five percent customs duty will be applicable for any shipment valued above the threshold level, besides an AED65 ($18) as administration fees.

Tobacco, tobacco products, e-cigarettes, nicotine liquid, alcohol beverages and foods containing alcohol are excluded from the exemption of threshold of AED300, as the duties tariffs are different for these products.

Besides, these products also require other approvals for clearance.

“The trend of collaboration will rise further as international players looking for newer prospects for growth would be further encouraged to partner with local retailers following the new customs duty policy change,” global consultancy RedSeer Strategy Consultants, said in a quick market impact study.

The study said the policy change will impact the UAE’s $2 billion CBT market, with fashion products accounting for the highest contribution to the value of cross border sales.

“Within fashion, luxury fashion will be the most impacted as CBT share in this category is higher than others,” RedSeer said.

It, however, said the ultra-luxury fashion category will not get impacted as its consumers are not price sensitive.

The impact of the policy change will also be minimal in the home and electronics sector “as most of the orders’ value doesn’t lie within AED300 – AED1000”, the study said.

The UAE has amongst the highest CBT penetration compared to global benchmarks, as the high expat population in the country inclines towards purchasing from global brands.

The country’s CBT, however, has been seeing a consistent decline since 2018 as the UAE market evolved, with local players improving their value propositions and consumer behaviour inclining more towards delivery experience, after-sale services and convenience.

“The latest customs change will further streamline the retail business in the UAE, as it should help deepen partnerships between international and local players, improve overall consumer experience and add value to the local economy,” said Sandeep Ganediwalla, Dubai-based managing partner of RedSeer Strategy Consultants, told Arabian Business.

Ganediwalla said there needs to be a balance between policy, tax, local supplier profits and customer spend.

“I think tax imports only benefit consumers…so such moves [customs duty change] help get the balance right by creating stronger local players …creating more jobs locally,” he said.

Senior executives at some of the Dubai-based retail chains, who wished not to be identified, said the major beneficiary of the customs duty change would be the local retail ecosystem as the update augments the growth of a sustainable local ecosystem.

The move will also broaden the revenue net for the authorities, they said.

Before 2018, the availability of a wide range of choices, quality, and competitive pricing in international markets aided the trend of shopping online in the UAE and the wider Middle East region.

However, since then, especially in the post-pandemic period, the overall share of CBT in the UAE has been seeing a significant and consistent decline, with consumers showing a renewed sense of trust towards local players.

The recent policy update is expected to accelerate this trend further, industry executives said.