VAT in UAE: What Are Exempt Supplies under VAT

What is Exempt Supplies

In simple words, VAT is not collected as there are some exempted goods and services informed in UAE executive regulations. This implies, VAT is not charged, on supplying these goods and services. By definition, exempt supplies are defined as ‘supply of goods or services for a consideration while conducting business in the State, where no tax is due and no Input Tax may be recovered except according to the provisions of the Decree-Law ‘.

Then again, businesses supplying these exempted goods or services will not be permitted to guarantee the input tax paid on your purchase. For example, the manufacturer cannot claim the 5 per cent input VAT which was levied once at the time of purchasing the raw material used for production and thus adding it to the cost of the product.

List of VAT Exempted goods and services in UAE

Predominantly, UAE VAT exemption is given for certain financial services, residential building, and supply of bare land, local passenger and etc. The specific conditions mentioned in the UAE VAT Act and Executive Regulations need to be fulfilled to consider a supply as exempted from the VAT.

The list of the VAT exempted goods and services is:

1. Financial Services

The financial services under VAT exemption supplies are:

a. Exempted financial services which are not connected are discount, commission, in return for an explicit fee, and rebate or any similar return.

b. VAT rate exemption includes allotment, issue, or transfer of ownership of an equity security or a debt security.

c. Under VAT exempted list, the provision or transfer of ownership of a life insurance contract or the provision of reinsurance in respect of any contract.

But how would I know whether an activity or service which I am giving is a financial service? How can financial services be defined?

Yes, Financial service is not defined by the UAE VAT Executive Regulation, but the examples which amount to financial services has been listed down.

Financial services are defined as the services which are linked to dealing in money or its equivalent and the provision of credit. Examples of financial services are Exchange of currency issue, advance or credit, provision of any loan, deposit or savings account, the operation of any current etc.

Kindly note, all the financial services discussed above are not exempted from VAT. Taxable supply would be considered if any of these services will be conducted in return for an explicit fee, discount, rebate, and commission or similar as inspection in respect of the supply of services.

2. Residential Buildings

VAT exemption subject includes the supply of residential buildings subject to the following condition:

a. The contract is of more than 6 months or

b. The holder of an ID card issued by the Emirates Identity Authority is the inhabitant of the property

The above referred period of tenancy will be identified with reference to the contractual period of tenancy and the period of tenancy is extended or it is renewed or any period arising from a contractual period of tenancy will be included.

The residential building meant for human accommodation referred to building includes residential accommodation for students or school pupils, armed forces and police, nursing homes, principal place of residence, rest homes, and orphanages.

All the residential accommodation which are inside the meaning of residential building and fulfilling the above conditions are VAT exempted.

Does the buildings which are not considered as a residential building exists?

Yes, and below are the examples of non-residential accommodations which are not considered as residential buildings:

Any building that can be moved without being damaged which is not fixed to the ground.

Any building that is utilized as a hotel, motel, bed and breakfast establishment, or hospital or something like that.

In addition to the supply of accommodation, a service is provided to a serviced apartment.

5% of VAT will be applicable in all the cases mentioned above and any building which will be constructed or converted without any lawful authority.

3. Bare Land

‘Bare land’ is defined as the land that is not covered by complete buildings or civil engineering works or partially completed buildings.

4. Local Passenger Transport Services

From a place in the State to another place in the State will be exempted if the supply of local passenger transport services will be by land, water or air. VAT exemption will occur in means of transport such as motor vehicle including bus, tram, taxi, monorail, abra, railway train, ferry boat or other similar vessel or similar means of transport, designed or adapted for transport of passengers.

In accordance to the Civil Aviation Act, for transportation of passengers via helicopter or aeroplane which are designed or adapted and approved for transportation of passengers is exempted.

As mentioned in UAE executive regulation, neighbourhood traveller transport benefits with regards to leisure trip and nearby traveller transport benefit via aeroplane which establishes “international carriage’ is not exempted and 5% VAT will be levied.

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