United Arab Emirates

Discusses pricing formula and other fees, value-added tax (VAT).

Last published date: 2019-10-13
For consumer goods, price is the main factor for the middle and lower income groups.  These market segments (referred to as “B-Category” Stores) are served through small shops in traditional souks or markets.  Retailers in this category operate under relatively lower margins and rely on fast selling brands.  To ensure the provisions of the laws advocate the principle of healthy competition and fighting monopoly and commercial fraudulence in this sector, the UAE Government has promulgated consumer protection laws to monitor the prices of consumer goods. 

At the other end of the spectrum are the segments of the society with high purchasing power, made up of largely of UAE nationals, white collar workers, businesspersons and tourists.  For this group, pricing is not always the primary buying factor and such retail outlets generally retain a high margin.  These segments are serviced through Western-style malls and specialty shops (referred to as “Modern Trade Outlets”). 

The UAE is home to some of the largest malls in the world, since their air-conditioned comforts in a harsh climate include various dining and entertainment, as well as shopping establishments. U.S. exporters must be ready to use pricing aggressively to encourage market acceptance of their products while keeping in mind various pricing factors, namely, listing fees (applicable per SKU’s), annual rebate (percent), non-return Fee (percent), and annual promotional commitment ($ or percent), etc. 

Once products are listed and depending on product categories, local agents frequently have to negotiate space (charges) and need to appoint merchandizers for maintaining shelf space in stores and to ensure product facing.  U.S. companies entering the market must be mindful of such costs, which may add approximately 25 percent to product costs, depending on turnover volume.  The retail chain would then add another 20-25 percent profit margin to recover their costs. 

Since January 2018, the government implemented a five percent VAT on certain categories of goods with some limited exceptions including basic food items, healthcare, and education.  While there is no VAT on exports in the UAE, there is a five percent VAT on imports and domestic supplies with some exemptions. 

As a stable economy with minimal inflation, fluctuation of buying prices are generally not accepted by major retail stores unless substantiated with valid rationale.  Even with circumstantial evidence for price increases, retail chains often insist on verification that such changes have been incorporated by their competitors before accepting any change. 

American companies may leverage UAE consumer perception of higher quality and higher transport costs for products from the United States., thereby allowing them the liberty of pricing relatively higher than Indian, Chinese, Korean, and Japanese suppliers (which are competing against each other in this market).  European companies are known to offer quality products as well and are tough competitors when the Euro is low. The strength of the Euro versus the Dollar (though in decline), and the peg of the AED to the Dollar ($1 = AED 3.67), which offers pricing and exchange consistency for buyers, currently favors U.S. products and services.