The zero-rated and exempt supplies under VAT in UAE

The 5% VAT system is all set to be implemented in the UAE starting from January 1, 2018. While most of the services and goods under VAT will be taxable at flat 5%, some of the supplies would be treated as zero-rated or exempted as per the GCC agreement. In this article, you can find more details about such supplies.

Zero-rate supply under VAT

A zero-rated supply means that the tax is still chargeable on it but the VAT rate is zero percent. The businesses are required to record all their zero-rated supplies in their tax ledgers and report the same while filing their tax returns.

Download Guidance on Zero-Rated and Exempt Supplies

Vat Zero-Rated

Suppliers are not able to charge tax from their customers on a zero-rated supply. However, they can recover tax credits for expenses on inputs of such supplies.

All suppliers must register under VAT if their annual taxable turnover, including zero-rated supplies, is more than Dh375,000 or is expected to cross this threshold limit in the next 30 days.

In certain cases, a supplier of zero-rated supplies can ask for the exemption from VAT registration only if he/she doesn’t make any other supplies that are liable for standard VAT at 5%. If they are granted the exemption, they will not be required to file regular tax returns and will not be able to claim input tax on their supplies. However, if they do not qualify for an exemption, they will be required to register for VAT and file regular returns. Such cases are also eligible for the return of credits.

The exporters, real estate developers, schools, hospitals, airlines, clinics, etc. are some of the examples of the suppliers of zero-rated products and services.

According to the Article 45 of the Federal Decree-Law no. (8) of 2017, the following supplies are subject to the zero rate under VAT.

  • Exports of goods and services.
  • Certain means of transport, such as trains, trams, vessels, airplanes.
  • Aircraft or vessels designated for rescue and assistance by air or sea.
  • International transport of goods and passengers.
  • Certain investment precious metals.
  • Certain health care services and related goods and services.
  • First sale/rent of residential buildings.
  • Certain educational services and related goods and services.

Exempt supplies under VAT

The supplies (goods and services) which are not taxable under VAT are exempt supplies. The suppliers will not have to pay tax on exempt supplies and cannot recover input credit for any expenses incurred in manufacturing such items.

A supplier who only makes and sells VAT exempt supplies need not register for VAT and/or file tax returns. They also cannot claim the tax credit on any business purchases made by them. Property owners who rent their residential properties are an example of this.

According to the Article 46 of the Federal Decree-Law no. (8) of 2017, the supply of the following good/services will be treated as tax-exempt supplies.

  • Financial services such as life insurance and renewal of life insurance
  • Financial services that are not for the purpose of an explicit fee, discount, rebate, commission or any other similar consideration.
  • Residential buildings, except for the ones which are zero-rated.
  • Local passenger transport.
  • Bare land.
  • Healthcare services and medicines, surgery
  • Tuition fee
  • Certain government services

The exact list of the good and services that are exempted or zero-rated under VAT will be revealed as the VAT system goes live in January.

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