The Federal Tax Authority (FTA) has recently laid down guidelines for the transactions taking place against the supplies in the higher education sector in the UAE. In this article, we shall be discussing the details regarding the implications of VAT on all the supplies in the higher education sector in the UAE and how VAT registration in UAE can help you in recovering the expenses incurred on VAT with relation to the supplies in the higher education sector.
Applicable of VAT on all the supplies in the higher education sector in the UAE
The first question that comes to mind in this reference is whether VAT is applicable to all the supplies that are related to the higher education sector in the UAE. The answer to this question is no. The supplies in the higher education sector are divided into 3 categories i.e. zero-rated, exempt, and standard-rated categories. Let us discuss in detail all these 3 categories-
1. Zero-rated supplies
The supply of education services provided by the universities and higher education institutes are zero-rated if the institute is managed and owned by the local government or it receives more than 50% of its annual funding directly from the local government and also if the curriculum and the educational institution are recognized by the federal or local government body. A qualifying institute may also zero-rate the supply of goods and services where the supply is directly related to the zero-rated educational service and the supply of printed or digital study material which are related to the recognized curriculum.
2. Exempt supplies
The services like that of transportation of students from home to the university or institute location and vice versa are exempt from VAT.
3. Standard rated supplies
The standard VAT rates are applicable in the following cases-
- The supplies made to the people who are off the roll in the institution
- Electronic devices, food, and beverages
- Field trips not directly related to the curriculum
- Any extracurricular activity that has been provided for an additional charge
- Supply of membership in any student organization
- Rental services of hall/auditorium
- Courses offered to the employees of corporates and businesses that are not in accordance with the approved curriculum
- Any clothing that is required to be worn like laboratory coats, irrespective of the fact that it had been provided by the higher education as part of the supply of educational services
In order to be clearer on whether or not the supply made by the higher education is exempt or zero-rated or standard-rated, one must consult the tax consultants in the UAE.
Should higher education sectors register for VAT?
Similar to the other businesses, the higher education institutions who are making zero-rated or standard-rated supplies are supposed to register for VAT if in the past 12 months exceeded or it is expected that it is going to exceed in the next 30 days the mandatory registration threshold of AED 375,000 as set by the FTA.
Also, a higher education institution may voluntarily register for VAT in case the value of the taxable supplies and imports or the taxable expenses incurred exceeded in the past 12 months or it is expected that it is going to exceed in the coming 30 days the voluntary registration threshold of AED 187,500 as set by the FTA.
In cases where the higher education institute is supplying only zero-rated supplies, there is an exemption from VAT registration via the registration application.
For more details, one must consult the tax consultants in Dubai to get a clear picture.
Do higher education institutes need to issue tax invoices?
The answer to this question is yes. Tax invoices are supposed to be issued for all zero-rated and standard-rated supplies. A simplified tax invoice can be issued in case the supply has been made to the unregistered recipient or in a case where the consideration of the supply for the registered recipient is AED 10,000 or less. But it is to be noted that no tax invoice shall be issued where the supply qualifies to be fully zero-rated and there is sufficient record present for establishing the particulars to the supply.
Can input VAT be recovered by the institutions in the higher education sector?
The full recovery of input VAT is only allowed for the institutions that are making zero-rated or standard-rated supplies. The exceptions, in this case, are for the blocked items like:
- Certain entertainment services
- Purchased, leased, and rented motor vehicles that are available for personal use.
However, it is to be noted that in the cases where the higher education institutions also render the exempt transport services, only a portion of input VAT can be recovered.
Some particular cases in the higher education sector with relation to VAT
- The supply made by the higher education sector for extra-curricular activities can be zero-rated only if it is offered without any additional fee. In cases where an additional fee has been charged then in those cases, VAT is applicable.
- The supply from the vending machines is also subject to VAT and the date of supply, in this case, is the date when the funds are collected from the vending machine.
- The transportation of the students from home to the institute and vice versa are exempt from VAT
- The supply of foods and beverages in the canteen is subject to VAT. However, in case a monetary voucher is issued, then the VAT liability crystallizes only when the voucher is redeemed. The supply of a monetary voucher is disregarded for VAT purposes for consideration up to its face value.
- The predominantly recreational and directly related to curriculum field trips are zero-rated. In case it does not satisfy these conditions then it is subject to 5% VAT.
- The application and registration fee should be rated at a standard VAT rate of 5%. This is because the receipt of application and registration is not proof of being enrolled with the higher education institute. Therefore, the VAT on such receipts is standard rated.
- The research activities conducted by higher education institutes for any external entity are subject to the standard rate of 5%.
Need help filing VAT returns in UAE on supplies in the higher education sector?
So, if you are not sure what all transactions in your higher education institute are VAT exempt, zero-rated, or standard rated, then do not hesitate to contact Farahat & Co and take a consultation from our VAT experts. Our experienced tax consultants in Dubai will help you out in the best way possible to solve all your VAT-related queries right from registration, to filing returns and complying with the tax guidelines as laid by the FTA.