Fashion and luxury retail brands react to new UAE tax

Fashion retailers such as Centerpoint online, 6thstreet, namshi and offline players are expected to benefit the most from the new policy change effective from January 1, as fashion and beauty account for around 70 per cent of UAE’s cross-border trade.

This new policy reduced the high-value threshold for shipments imported into the UAE from AED1000 ($272) to AED300 ($81).

In light of this custom change, the UAE should be prepared for an abundance of international players in fashion and beauty products flocking to the country to establish their bases here or seeking partnerships with local retailers thanks, industry experts noted.

Moreover, it is speculated that the policy change will push local retailers to embark on major product and marketing initiatives to enhance value propositions to woo and retain consumers seeking local alternatives.

 Details of new UAE customs rules

Under this new policy, a five per cent customs duty will apply to any shipment valued above the threshold level, on top of an AED65 ($18) administration fee.

Tobacco, tobacco products, e-cigarettes, nicotine liquid, alcoholic beverages and products containing alcohol are not eligible for the exemption threshold of AED300, since the duties tariffs for these products differ.

Besides, these product categories also require extra approvals for clearance.

Red Seer perspective

Global consultancy RedSeer Strategy Consultant shared its insights in a new market impact study: “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.”

For now, the UAE has one of the highest cross-border trade penetration compared to global benchmarks, as the local expat population prefer buying from global brands.

The RedSeer study said the policy change is going to impact the UAE’s cross-border trade market, with fashion products responsible 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,” the report said.

However, when it comes to the ultra-luxury fashion sector, the impact will be negligible as the vast majority of its consumers are not price-conscious

Likewise, the home and electronics sector will be minimally affected “as most of the orders’ value doesn’t lie within AED300 – AED1000”, according to the study.

It is crucial to point out that the country’s cross-border trade has been been on a downward trajectory since 2018, with local players enhancing their value propositions, coupled with consumer behaviour progressively leaning more towards delivery experience, and convenience.

 Managing partner of RedSeer Strategy Consultants, Sandeep Ganediwalla, told Arabian Business: “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.”

Thus, MR Ganediwalla noted, a delicate balance should be struck between policy, tax, local supplier profits and customer spending: “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.”