Many countries, when implementing tax legislation, grant preferential treatment to certain goods and services, making them zero-rated or tax-exempt . Governments aim to reduce the tax burden incurred by citizens in the course of conducting their business.
Zero-rated tax can be defined as a tax imposed on goods and services that are zero-rated according to the legal texts contained in tax legislation. The zero rate is imposed on many goods and services, such as exported goods, medical equipment, healthcare-related services, and education services.
Below, we review with you in detail the goods subject to the zero rate under the provisions of Federal Decree-Law No. (8) of 2017 and the recent amendments to the Value Added Tax Law in the UAE contained in Federal Decree-Law No. (18) of 2022.
Zero-rated goods
We distinguish below between goods that are exported directly and goods that are exported indirectly, in both cases outside the applicable countries.
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Conditions for subjecting direct exports to the zero rate
- That the goods are actually transported to a place outside the applicable countries, or that these goods are placed in a customs duty suspension status in accordance with the unified customs law among the countries of the Gulf Cooperation Council within a period of (90) days from the date on which the supply took place.
- The exporter must maintain official and commercial evidence that proves the export or suspension.
Conditions for subjecting indirect exports to the zero rate
- That the goods have been actually transferred outside the implementing countries or placed in a customs duty suspension status in accordance with the Unified Customs Law among the Gulf Cooperation Council countries , within (90) days from the date on which the supply was made, according to the arrangements agreed upon between the foreign customer and the supplier on the date of supply or before that.
- The foreign customer must have official and commercial evidence that proves the export or suspended status, and must provide copies of these evidences to the supplier.
- Not to use or make any changes to the goods during the period between supply and export or suspension, except for what is necessary to prepare the goods for export or to place them in suspension
- Goods shall not leave the country accompanied by a passenger on board a ship or aircraft or a member of its crew.
Zero-rated goods
- Supply or import operations for land, sea and air means of transport used to transport passengers
- Supply or import operations of the above-mentioned goods related to the aforementioned means of transport
- Supply or import operations of natural gas or crude oil
- Supply and import operations of goods related to preventive and essential healthcare services.
Also browse: The complete guide to registering companies for VAT .
Zero-rated medicines and medical equipment
Article Two of Cabinet Resolution (56) of 2017 stipulates the application of the zero rate with regard to the supply of medicines and medical equipment registered with the Ministry of Health and Community Protection or imported with prior permission or approval from it.
It is worth noting that the UAE Cabinet had previously issued Resolution No. (9/12) of 2020, which included applying a zero rate to personal protective equipment used to prevent the COVID-19 virus, provided that the supply and import of such equipment was completed within six months of the date of issuance of the resolution.
Zero rate on precious metals
The supply and import of investment precious metals for investment purposes is subject to the zero rate. The executive regulations of Federal Decree-Law No. 10 of 2017 regarding value-added tax define the term investment precious metals, indicating that they include gold, platinum, and silver. The following criteria apply to them:
- The purity of the metals must be 99 percent or greater.
- That the metals are tradable in global bullion markets.
Zero rate applied to some means of transportation
The zero rate applies to cases related to the supply of an aircraft designed or adapted for use in the commercial transport of passengers and goods. However, the zero rate does not apply to aircraft designed for the purpose of recreation, pleasure or sport.
Goods supplied for the repair, operation, maintenance or conversion of such means of transport, with the exception of fuel and oil and gas products, provided that the use of the specified goods is in accordance with the following conditions:
- That these goods are attached to, attached to, attached to or become part of the means of transport.
- To be used directly as consumer goods in the process of repair, operation, maintenance or conversion, and as a result become unusable or of little value.
Also browse: Frequently asked questions about VAT .
Zero-rate application of education-related goods
The zero rate applies to goods provided by the educational institution in accordance with the curriculum recognized by the competent government authority, as well as to reading materials, whether printed or electronic, that are also provided by the educational institution.
Goods provided by the educational institution to non-members, as well as non-educational goods, provided that they are transferred or consumed by students receiving the educational service for educational purposes.
Uniforms or other clothing required by an educational institution for students to wear, whether or not supplied by the educational institution as part of educational services.
Electronic devices related to educational services, as well as food and beverages supplied to the educational institution.
Zero-rating is applied to residential and converted buildings and buildings specifically designed for charitable use.
residential buildings
The zero rate applies to buildings occupied by individuals as their primary residence, housing allocated to students or schoolchildren, housing allocated to the armed forces and security forces, and nursing homes.
The residential building does not include buildings that are used as a hotel, hospital, or the like.
converted residential buildings
This applies to the first supply of any building or part thereof that has been converted into a residential building, provided that the supply has been completed within three years from the date of completion of the conversion, and that the building or any part thereof has not been used as a residential building during the five years prior to the commencement of the conversion work.
Buildings specifically designed for the use of charities
This applies to the first sale or lease of a building or part thereof, provided that it is designed to be used by a charitable organization whose activity is charitable only.
Farhat & Partners, our consultants specialize in all matters related to value-added tax and the new amendments to the law.
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Dubai, United Arab Emirates
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