VAT, to be launched on January 1, 2017, is going to impact all the aspects of the education industry. Let’s try to understand some of these impacts via a detailed question-answer based analysis.
1. What is the VAT treatment of education sector in UAE?
The primary educational facilities and concerned goods and services should be considered as zero-rated if delivered by below-mentioned ‘qualifying educational institutions’:
- Higher educational institutions operated or financed by local or federal government
- Preschools, schools, and Nurseries
This implies that a ‘qualifying educational institution’ will not impose VAT on the zero-rated educational facilities they render and is liable to restore the VAT they reimburse on related prices while filing their tax returns under the provisions of VAT provisions of UAE. Apart from the Educational services mentioned above which come under a ‘qualifying educational institution’, all the other services provided by the means of education on the name of other entities are entitled to attract the standard rate i.e. 5%.
2. Is it required to register ‘qualifying educational institutions’ for VAT?
Under the provision, ‘qualifying educational institutions’ which provide the educational services come under zero-rated taxable supply. Therefore, if the services limit exceeds the threshold limit of Dh375,000, the entity is required to register for VAT.
It can be the case of exception from registration through the registration application if the institute is not rendering any goods or services which can be taxed at 5% standard rate. When the school or entity applies for the exception, definitely it will release it from paying any taxes but also not providing the input tax incurred on its spendings.
3. Do Zero-rated education services available to be supplied by anybody?
No, it is not the case. As mentioned above only ‘qualifying educational institutions’ are allowed to provide zero-rated supplies in the education sector. ‘Qualifying educational institutions’ are accredited entities by the local or federal government and control the education sector in the country where the course is rendered, the higher education entities are generally operated by the local or federal government or accepts more than 50% of their total year-end funds from the government.
So the zero-rated services are not entitled to be provided by any institutions and those institutions which are not supplying the zero-rated services are subject to pay 5% VAT considering standard rate.
4. Are all education services provided by education institutes zero-rated?
Only educational services delivered in relation to the schedule arranged by the local competent government or federal government controlling the education segment where the course is rendered would be zero-rated. If an educational institute provides education not as described with a recognized schedules, it should be charged VAT at a rate of 5% on mentioned educational supplies.
It can be the case, an educational entity is providing the educational services free of cost and education is completely financed by the government. Given the conditions for zero-rated supplies are still matched for example as it is an accredited schedule delivered by an education institute, then the provided income is considered as zero-rated.
5. What are concerned goods and services?
If the goods and services which are directly related to a zero-rated supply of education and supplied by a ‘qualifying educational institution, they also considered under the Zero-rated supplies. For instance, books and digital reading material that is connected to the curriculum used in studying and delivered by educational entities, also entitled under zero-rated supplies.
6. What are the supplies entitled to the standard rate of VAT?
Here is the list of supplies which are entitled to be paid VAT at a standard rate i.e 5%:
- Any goods, other than educational materials delivered by a ‘qualifying educational institution’ transformed or consumed by the students and being taught by
- Goods and services provided by a ‘qualifying educational institution’ to persons who are not registered in it
- Extracurricular activities delivered through a ‘qualifying educational institution’ for a fee which is extra to the fee for the education service
- Electronic devices utilized in educational services, regardless of whether or not delivered by a ‘qualifying educational institution’ as a part of the supply of educational services
- Uniforms and other clothing is worn by a ‘qualifying educational institution’, regardless of whether or not they are supplied by such entity as part of the supply of educational services
- Field trips, which are directly related to the curriculum of an education service and are not mainly entertaining
- A supply of membership in a student organisation
- Food and beverages delivered at a ‘qualifying educational institution’ comprising supplies from vending machines or vouchers relating to food and beverages.
- The provision of school transportation
All aforementioned items are subject to attract a VAT at a standard rate which is 5%.
7. What about the VAT treatment for student accommodation?
As residential accommodation definition includes the supply of student accommodation(except the first supply of a new building) will be exempt to pay VAT. So, the educational entities providing student accommodation will not be able to recuperate VAT obtained on prices which apparently link to the provisions of the student accommodation.
8. What about grant-funded research under VAT?
Again the grant-funded research depends on the funder benefits in VAT treatment. When the educational entity is needed to render certain things in return for the funding and is necessitated to provide the intellectual property and other items of the research work to the fund provider, then the research services are subject to attract the VAT at 5%. If the educational institute is not required to return anything to the funder but the incidental information like records of expenses, progress updates, and research evidence, then the grant-funded research will be treated outside the scope of the VAT. VAT imposed on prices which are related to an outside the expansion of supply and not concerned to a taxable supply created by the business could not be restored as an additional cost of the business in relation to the business’ input tax allocation percentage.
accommodation will not be able to recuperate VAT obtained on prices which apparently link to the provisions of the student accommodation.
9. What are the provisions for grant income and sponsorship under VAT in UAE?
It can be the case where educational institute would be receiving grant income and sponsorship benefits from the third parties or the government. The VAT treatment wholly depends on whether you are returning the benefits to the donor. When a profit is returned, you are making a taxable supply of services and require to pay the VAT on income earned from it. The list of benefit includes giving free of charge or reduced price tickets in return for the sponsorship, naming an event after a sponsor, and showing the sponsor’s logo at a pre-decided place on flyers.