Goods and Services Exempted from VAT in UAE

As the economy evolves, the UAE government makes adjustments to the country’s tax policies. The implementation of VAT, or the UAE’s value-added tax, was a game-changer for businesses. Anyone looking to start a business in Dubai or another emirate should have a solid grasp of the VAT system. To identify your company’s category, you need to get familiar with the UAE’s zero-rated and VAT-exempt areas.

For a long time, the United Arab Emirates and the rest of the Gulf region had no income tax. That all changed in 2018. In the UAE, a 5% value-added tax (VAT) was put in place on January 1st, 2018. The purpose of implementing VAT was to provide the government with a new revenue stream and to reduce the economy’s reliance on the petroleum industry. Specific exempted services or goods are listed in UAE executive regulations and are not subject to VAT. This means that no VAT is charged when these goods or services are supplied.

Value Added Tax (VAT)

When it comes to indirect taxes, Value Added Taxes (VATs) are among the most common. VAT is applied at every step of the supply chain in the context of a consumption tax, which is ultimately paid for by the final customer. According to the type of supply, VAT is classified into three main types:

Taxable VAT

This group includes products and services with a 5 percent VAT.

Exempted VAT

Products and services that are exempt from value-added tax are included in this category. It means that no VAT is charged on input or output.

Zero-Rated VAT

Services and goods that are VAT taxable, but are taxed at 0% are included in the Zero-Rated VAT. If the VAT rate is 0%, you are still required to keep track of your purchases and disclose them on your VAT return. VAT-listed businesses in the UAE can reclaim their input VAT if they deal with Zero-Rated items & services.

Difference between Zero-Rated VAT vs Exempted VAT

A zero-rated VAT supply is one in which goods and services are subject to taxation but VAT is levied at 0%. VAT-registered business owners that yield zero-rated supplies or services get the authority to claim input tax deductions acquired while producing the previously stated taxable supplies. Exempt VAT, on the other hand, is the provision of products or services which are not subject to any VAT rate.

VAT Exemption

Exemption from VAT refers to products and services in the UAE that are not subject to VAT or business enterprises that do not levy value-added tax. Businesses may qualify for a partial VAT exemption in certain situations. It implies that a business is VAT-registered but sells both taxable and exempted goods. These businesses can reclaim the VAT they paid on the sale and manufacturing of VAT-exempt products. To avoid fines, such enterprises must use the services of a reputable law firm. When a commodity is VAT exempt, it implies that:

  • Businesses cannot charge VAT on the costs of the excluded goods sold.
  • VAT on these exempted goods purchased cannot be reclaimed.
  • There is no requirement to keep track of sales of VAT-exempt goods.
  • A company’s VAT taxable turnover does not include the sale of VAT-exempted goods.

Goods and Services Exempted from VAT in UAE

The following goods and services are exempted from VAT in the UAE:

Financial Services

The term financial services refer to any service involving the exchange of money or its equivalent, or the supply of credit. VAT exempt supplies include the following financial services:

  • Financial services that are not provided in exchange for a payment, concession, incentive, rebate, or an equivalent return are excluded.
  • The issuance, allocation, or transfer of ownership of a debt or equity security is excluded from the VAT rate.
  • The provision or change of ownership of a life insurance policy or the provision of reinsurance for any such contract falls under the VAT exempt list.

Residential Buildings

Residential buildings are structures meant and constructed for human occupation, such as primary residences, housing for police and armed forces, students or school pupils, rest homes, orphanages, and nursing homes. VAT exemption is granted for the supply of residential buildings subject to the following conditions:

  • The lease is for a period of more than six months or
  • The property’s tenant has an Identity card authorized by the Emirates Identity Authority.

Bare Land

The term “bare land” refers to land that is not covered by finished or partially completed building structures or civil engineering works.

Local Passenger Transport Services

The provision of local passenger transport services by air, land, or water from one location in the state to another will be exempted. Motor vehicles, including taxis, buses, railway trains, trams, monorails, ferry boats, and other similar vessels or modes of transport intended or tailored for passenger transport, are exempt from VAT.

Even airplanes or helicopter crafted or suited for passenger transport and authorized for passenger transport in conformance with the Civil Aviation Act is excluded.

Why choose Bin Eid Advocates?

We are a renowned legal VAT consultancy firm that provides enough support for businesses and people to familiarize themselves with the current legislation and tax provisions. In order to provide you with the finest services, we utilize the best resources and work constantly to enhance the service quality so that you have all the support you need to grow your business flawlessly.

Our skilled and competent lawyers can help to avoid making a hasty judgment when it comes to VAT implementations that affect a company’s operations. Our experts can assist anyone who wants to learn more about VAT Registration, VAT Application, and VAT Return Filing Services.

An indirect tax known as Value Added Tax (VAT) is applied to the existing sales price of most products and services when sold anywhere in the zone. Even though most goods and services in the UAE are taxed at the existing VAT rate of 5%, there are some that are tax exempt.

Whenever it comes to VAT and taxes in the United Arab Emirates, you must ensure you have all the information stated clearly and your business plan substantiated so that you can adhere to the rules and regulatory requirements. Since the UAE’s value-added tax rules are recent, it’s best to consult with a VAT expert to fully comply with Free Trade Agreement (FTA) standards and procedures and minimize the risk of fines and other legal repercussions.

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